<PAGE>
As filed with the Securities and Exchange Commission on April 20, 1998
Registration No. 33-78944
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 8 /X/
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 10
OCC ACCUMULATION TRUST
(Exact Name of Registrant as Specified in Charter)
ONE WORLD FINANCIAL CENTER, NEW YORK, NY 10281
(Address of Principal Executive Offices)
(212) 374-1600
(Registrant's Telephone Number)
Thomas E. Duggan, Esq.
Oppenheimer Capital
One World Financial Center
New York, NY 10281
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to /X/ on May 1, 1998
pursuant to paragraph (b) pursuant to paragraph (b)
/ / On October 15, 1997 pursuant to / / pursuant to paragraph
paragraph (a)(1) (a)(1)
/ / 75 days after filing pursuant to / / on February 1, 1998
paragraph (a)(2) pursuant to paragraph
(a)(2) of Rule 485
Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 promulgated under the
Investment Company Act of 1940 and has filed its report pursuant to that Rule
for the year ended December 31, 1997 on March 30, 1998.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form N-1A
Item
Part A Caption Prospectus
- ------ ------- ----------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Financial Highlights
Information
4. General Description of Investment Objectives and Policies;
Registrant Additional Information on Investment
Objectives and Policies; Additional
Information
5. Management of the Fund Management of the Fund; Additional
Information; Investment Techniques
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other Determination of Net Asset Value; Purchase
Securities of Shares; Dividends, Distributions and
Taxes; Additional Information
7. Purchase of Securities Purchase of Shares
8. Redemption or Repurchase Redemption of Shares
9. Legal Proceedings Not Applicable
<CAPTION>
Part B Caption Statement of Additional Information
- ------ ------- -----------------------------------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Not Applicable
History
13. Investment Objectives and Investment of Assets; Investment
Policies Restrictions
<PAGE>
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Trustees and Officers; Control Persons
Holders of Securities
16. Investment Advisory and Investment Management and Other Services;
Other Services Additional Information
17. Brokerage Allocation Investment Management and Other Services
18. Capital Stock and Other Additional Information
Securities
19. Purchase, Redemption and Determination of Net Asset Value
Pricing of Securities
20. Tax Status Investment of Assets; Dividends,
Distributions and Taxes; Additional
Information
21. Underwriters Additional Information
22. Calculations of Performance Portfolio Yield and Total Return Information
Data
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
OCC ACCUMULATION TRUST
One World Financial Center, New York, New York 10281
OCC ACCUMULATION TRUST (formerly known as Quest for Value Accumulation Trust,
the "Fund") is a registered open-end diversified management investment
company offering several investment alternatives. It permits an investor the
flexibility of choosing among different investment objectives, through the
following seven Portfolios (the "Portfolios"), each of which is a separate
series of shares of beneficial interest of the Fund ("Shares"). The
investment objective of each Portfolio is as follows:
EQUITY PORTFOLIO: Long term capital appreciation through investment in a
diversified portfolio of equity securities selected on the basis of a value
oriented approach to investing.
MID CAP PORTFOLIO: Long term capital appreciation through investment in a
diversified portfolio of equity securities.
SMALL CAP PORTFOLIO: Capital appreciation through investment in a
diversified portfolio of equity securities of companies with market
capitalizations of under $1 billion.
GLOBAL EQUITY PORTFOLIO: Long term capital appreciation through a global
investment strategy primarily involving equity securities.
MANAGED PORTFOLIO: Growth of capital over time through investment in a
portfolio consisting of common stocks, bonds and cash equivalents, the
percentages of which will vary based on management's assessments of relative
investment values.
U.S. GOVERNMENT INCOME PORTFOLIO: High current income together with the
protection of capital through investment of securities issued or guaranteed
by the U.S. Government, its agencies and instrumentalities.
MONEY MARKET PORTFOLIO: Maximum current income consistent with stability of
principal and liquidity through investment in a portfolio of high quality
money market instruments. ALTHOUGH THE MONEY MARKET PORTFOLIO SEEKS TO
MAINTAIN ITS SHARE PRICE AT $1.00, AN INVESTMENT IN THE MONEY MARKET
PORTFOLIO IS NOT GUARANTEED OR INSURED BY THE U.S. GOVERNMENT AND THERE IS NO
ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL MAINTAIN A CONSTANT PRICE OF
$1.00 PER SHARE.
The Fund is an investment vehicle for variable annuity and variable
life insurance contracts of various life insurance companies, and qualified
pension and retirement plans ("Qualified Plans"). Shares of the Fund are
currently sold to variable accounts of various life insurance companies for
the purpose of funding variable annuity and variable life insurance contracts
(the "Contracts"). These variable accounts (the "Variable Accounts") invest
in Shares of the Fund in accordance with allocation instructions received
from owners (the "Contractowners") of the Contracts. Allocation rights are
further described in the accompanying prospectus for the Variable Accounts.
The Variable Accounts will redeem Shares to the extent necessary to provide
benefits under the Contracts. Certain Portfolios may not be available for
investment with respect to certain Contracts offered by certain life
insurance companies. Please check with your insurance company for available
Portfolios.
It is possible, although not presently anticipated, that a material
conflict could arise between and among the various variable accounts which
invest in Shares of the Fund and the Qualified Plans, which may, in the
future invest in Shares of the Fund. Such conflict could cause the
liquidation of assets of one or more of the Fund Portfolios to raise cash at
times not otherwise deemed advantageous by the Fund Manager. See "Management
of the Fund," page 22.
This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing, must be accompanied by a
current prospectus for the Variable Accounts and both should be retained for
future reference. A Statement of Additional Information dated May 1, 1998 (the
"Additional Statement") has been filed with the Securities and Exchange
Commission and is available without charge upon written request to your broker
or by contacting the Fund at the address listed in this Prospectus. The
Additional Statement (which is incorporated in its entirety by reference in this
Prospectus) contains more detailed information about the Fund and its
management, including more complete information about certain risk factors.
THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE
VARIABLE ACCOUNTS. THESE PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
OPCAP ADVISORS
Investment Manager
Prospectus dated May 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary ................................................. 3
Financial Highlights ............................................... 5
Investment Objectives and Policies ................................. 12
Equity Portfolio .............................................. 12
Mid Cap Portfolio ............................................. 12
Small Cap Portfolio ........................................... 13
Global Equity Portfolio ....................................... 14
U.S. Government Income Portfolio .............................. 14
Money Market Portfolio ........................................ 14
Managed Portfolio ............................................. 15
Additional Information on Investment Objectives and Policies ....... 15
Investment Techniques .............................................. 19
Investment Restrictions ............................................ 21
Management of the Fund ............................................. 22
Determination of Net Asset Value ................................... 24
Purchase of Shares ................................................. 24
Redemption of Shares ............................................... 24
State Law Restrictions ............................................. 25
Dividends, Distributions and Taxes ................................. 25
Calculation of Performance ......................................... 26
Additional Information ............................................. 27
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
THE FUND The Fund is a Massachusetts business trust which
issues its shares in series as separate classes of
shares of beneficial interest. There are currently
seven series, each of which is designated as a
"Portfolio". Together, the seven Portfolios are
designed to enable investors to choose a number of
investment alternatives to achieve their financial
goals and to shift assets conveniently among
Portfolios when and if their investment aims or
perception of the marketplace change.
The Fund commenced operations on September 16, 1994
when an investment company then called Quest for
Value Accumulation Trust, with portfolios
corresponding to three of the current seven
portfolios of the Fund, was effectively divided into
two investment funds, the original investment
company, whose name was changed, and the Fund.
INVESTMENT OBJECTIVES
AND RESTRICTIONS The investment objective of each of the Portfolios
is set forth on the cover page of this Prospectus.
These objectives are described in more detail under
the heading "Investment Objectives and Policies."
Although each Portfolio will be actively managed by
experienced professionals, there can be no assurance
that the objectives will be achieved.
The value of the portfolio securities of each
Portfolio and therefore the Portfolio's net asset
value per share (other than the Money Market
Portfolio) are expected to increase or decrease
because of varying factors. There are generally two
types of risk associated with an investment in one
or more of the Portfolios; market (or interest rate)
risk and financial (or credit) risk. Market risk
for equities is the risk associated with movement of
the stock market in general.
Market risk for fixed income securities is the risk
that interest rates will change, thereby affecting
their value. Generally, the value of fixed income
securities declines as interest rates rise, and
conversely, their value rises as interest rates
decline. The second type of risk, financial or
credit risk, is associated with the financial
condition and profitability of an individual equity
or fixed income issuer. The financial risk in
owning equities is related to earnings stability and
overall financial soundness of individual issuers
and of issuers collectively which are part of a
particular industry. For fixed income securities,
credit risk relates to the financial ability of an
issuer to make periodic interest payments and
ultimately repay the principal at maturity. (See
"Additional Information on Investment Objectives and
Policies" for risk aspects of the individual
Portfolios).
INVESTMENT MANAGER OpCap Advisors (the "Manager"), the investment
manager of each of the Portfolios, is investment
manager and sub-adviser to several other registered
investment companies with assets under management of
approximately $18.3 billion at March 31, 1998 and is
a subsidiary of Oppenheimer Capital, a registered
investment adviser, which had assets under
management, including those of OpCap Advisors, of
approximately $67.6 billion at March 31, 1998.
MANAGEMENT FEE The Manager receives a monthly fee from each
Portfolio at varying annual percentage rates of
average daily net assets, as follows: .80 percent
on the first $400 million, .75 percent on the next
$400 million and .70 percent thereafter of the
average daily net assets for the Equity, Mid Cap,
Small Cap, Managed and
3
<PAGE>
Global Equity Portfolios; .60 percent of average
daily net assets for the U.S. Government Income
Portfolio; and .40 percent of the average daily net
assets for the Money Market Portfolio (see page 22).
PURCHASES AND
REDEMPTION OF SHARES Currently, shares of the Fund are sold at their net
asset value per share, without sales charge, for
allocation to the Variable Accounts as the
underlying investment for the Contracts.
Accordingly, the interest of the Contractowner with
respect to the Fund is subject to the terms of the
Contract as described in the accompanying Prospectus
for the Variable Accounts, which should be reviewed
carefully by a person considering the purchase of a
Contract. That Prospectus describes the
relationship between increases or decreases in the
net asset value of Fund shares and any distributions
on such shares, and the benefits provided under a
Contract. The rights of the Variable Accounts as
shareholders of the Fund should be distinguished
from the rights of a Contractowner which are
described in the Contract. As long as shares of the
Fund are sold for allocation to the Variable
Accounts, the terms "shareholder" or "shareholders"
in this Prospectus shall refer to the Variable
Accounts. Shares are redeemed at their respective
net asset values as next determined after receipt of
proper notice of redemption.
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus, the Additional Statement, and the accompanying
Prospectus for the Variable Accounts.
4
<PAGE>
OCC ACCUMULATION TRUST
FINANCIAL HIGHLIGHTS
The financial highlights for the years ended December 31, 1997, 1996 and
1995, and for the period from September 16, 1994 through December 31, 1994
for the Money Market, Equity, Managed and Small Cap Portfolios; for the years
ended December 31, 1997 and 1996 and for the period from January 3, 1995
through December 31, 1995 for the U.S. Government Income Portfolio; and for
the years ended December 31, 1997 and 1996 and for the period from March 1,
1995 through December 31, 1995 for the Global Equity Portfolio have been
audited by Price Waterhouse LLP, independent accountants, whose unqualified
report thereon appears in the Additional Statement (Part B). This
information should be read in conjunction with the financial statements and
related notes thereto included in the Additional Statement. Total return
information for the Portfolios of the Fund provided in the Financial
Highlights does not include charges and deductions which are imposed under
the Contracts and described in the Prospectus for the Variable Accounts.
Inclusion of these charges and deductions would reduce the total return of
the Portfolios of the Fund. Further information about the performance of
each Portfolio is available in the Fund's Annual Report or semi-annual
report. Annual reports or semi-annual reports can be obtained without charge
upon written requests to the insurance companies issuing the Contracts.
5
<PAGE>
OCC ACCUMULATION TRUST
EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------- September 16, 1994(1)
1997 1996 1995 to December 31, 1994
----------- ----------- ---------- ---------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period...................................... $30.07 $25.05 $18.12 $18.57
----------- ----------- ---------- ---------------------
Income from investment operations
Net investment income....................... 0.39 0.21 0.31 0.09
Net realized and unrealized gain (loss)
on investments ........................... 7.34 5.52 6.71 (0.54)
----------- ----------- ---------- ---------------------
Total income from investment
operations............................... 7.73 5.73 7.02 (0.45)
----------- ----------- ---------- ---------------------
Dividends and distributions to shareholders
Dividends to shareholders from
net investment income.................... (0.28) (0.24) (0.09) --
Distributions to shareholders from
net realized gains....................... (1.00) (0.47) -- --
----------- ----------- ---------- ---------------------
Total dividends and distributions to
shareholders............................. (1.28) (0.71) (0.09) --
----------- ----------- ---------- ---------------------
Net asset value, end of period.............. $36.52 $30.07 $25.05 $18.12
----------- ----------- ---------- ---------------------
----------- ----------- ---------- ---------------------
Total return(2)............................. 26.6% 23.4% 38.9% (2.4%)
----------- ----------- ---------- ---------------------
----------- ----------- ---------- ---------------------
Net assets, end of period................... $28,819,978 $19,842,998 $9,035,982 $4,281,256
----------- ----------- ---------- ---------------------
Ratio of net operating expenses
to average net assets(5)................ 0.99%(4) 0.93%(6) 0.72%(6) 0.72%(3,6)
----------- ----------- ---------- ---------------------
Ratio of net investment income
to average net assets................... 1.25%(4) 1.29%(6) 1.74%(6) 1.80%(3,6)
----------- ----------- ---------- ---------------------
Portfolio turnover rate..................... 32% 36% 31% 6%
----------- ----------- ---------- ---------------------
Average commission rate..................... $0.0557 $0.0588 -- --
----------- ----------- ---------- ---------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1997 were $24,986,972.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.05% and 1.15%, respectively, for the
year ended December 31, 1996, 1.26% and 1.20%, respectively, for the year
ended December 31, 1995 and 2.09% and 0.43%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
6
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------- March 1, 1995 (1)
1997 1996 December 31, 1995
----------- ----------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period............................ $13.23 $11.61 $10.00
----------- ----------- -----------------
Income from investment operations
Net investment income........................................... 0.06 0.04 0.05
Net realized and unrealized gain
on investments................................................ 1.79 1.70 1.83
----------- ----------- -----------------
Total income from investment operations....................... 1.85 1.74 1.88
----------- ----------- -----------------
Dividends and distributions to shareholders
Dividends to shareholders from net investment income............ (0.04) (0.05) (0.03)
Distributions to shareholders in excess of
net investment income..................................... (0.03) ---- ----
Distributions to shareholders from net realized gains........... (0.69) (0.07) (0.24)
----------- ----------- -----------------
Total dividends and distributions to shareholders.......... (0.76) (0.12) (0.27)
----------- ----------- -----------------
Net asset value, end of period.................................. $14.32 $13.23 $11.61
----------- ----------- -----------------
----------- ----------- -----------------
Total return (2)................................................ 14.0% 15.0% 18.9%
----------- ----------- -----------------
----------- ----------- -----------------
Net assets, end of period....................................... $25,873,628 $16,972,488 $2,891,321
----------- ----------- -----------------
Ratio of net operating expenses to average net assets (5,6)..... 1.19%(4) 1.42% 1.25%(3)
----------- ----------- -----------------
Ratio of net investment income to average net assets (6)........ 0.45%(4) 0.81% 1.02%(3)
----------- ----------- -----------------
Portfolio turnover rate......................................... 53% 40% 67%
----------- ----------- -----------------
Average commission rate......................................... $0.0253 $0.0254 --
----------- ----------- -----------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized ) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1997 were $23,063,042.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1H in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses.
If such waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net
investment income (loss) to average net assets would have been 1.20% and
0.44%, respectively, for the year ended December 31, 1997, 1.83% and 0.22%,
respectively, for the year ended December 31, 1996 and 3.94% and (1.67%),
annualized, respectively, for the period March 1, 1995 (commencement of
operations) to December 31, 1995.
7
<PAGE>
OCC ACCUMULATION TRUST
U.S. GOVERNMENT INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------- January 3, 1995 (1)
1997 1996 December 31, 1995
----------- ----------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of period............................ $10.38 $10.62 $10.00
----------- ----------- ------------------
Income from investment operations
Net investment income........................................... 0.57 0.55 0.60
Net realized and unrealized gain (loss)
on investments............................................. 0.14 (0.24) 0.68
----------- ----------- ------------------
Total income from investment operations.................... 0.71 0.31 1.28
----------- ----------- ------------------
Dividends and distributions to shareholders
Dividends to shareholders from net investment income............ (0.57) (0.55) (0.60)
Distributions to shareholders from net realized gains........... (0.01) - (0.06)
----------- ----------- ------------------
Total dividends and distributions to shareholders.......... (0.58) (0.55) (0.66)
----------- ----------- ------------------
Net asset value, end of period.................................. $10.51 $10.38 $10.62
----------- ----------- ------------------
----------- ----------- ------------------
Total return (2)................................................ 7.0% 3.0% 13.1%
----------- ----------- ------------------
----------- ----------- ------------------
Net assets, end of period....................................... $6,983,275 $3,421,998 $1,442,458
----------- ----------- ------------------
Ratio of net operating expenses to average net assets (5,6)..... 0.93%(4) 0.96% 0.75%(3)
----------- ----------- ------------------
Ratio of net investment income to average net assets (6)........ 5.51%(4) 5.27% 5.75%(3)
----------- ----------- ------------------
Portfolio turnover rate......................................... 80% 31% 65%
----------- ----------- ------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencements of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1997 were $5,959,450.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses.
If such waivers and assumptions had not been in effect, the ratios of net
operating expenses to average net assets and the ratios of net
investment income to average net assets would have been 1.06% and 5.37%,
respectively, for the year ended December 31, 1997, 2.34% and 3.87%,
respectively, for the year ended December 31, 1996 and 4.73% and 1.77%,
annualized, respectively, for the period January 3, 1995 (commencement of
operations) to December 31, 1995.
8
<PAGE>
OCC ACCUMULATION TRUST
MANAGED PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------- September 16, 1994 (1)
1997 1996 1995 to December 31, 1994
------------ ------------ ----------- ----------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............. $36.21 $30.14 $20.83 $21.80
------------ ------------ ----------- ----------------------
Income from investment operations
Net investment income............................ 0.34 0.43 0.42 0.14
Net realized and unrealized gain (loss)
on investments................................. 7.45 6.31 9.02 (1.11)
------------ ------------ ----------- ----------------------
Total income from investment operations........ 7.79 6.74 9.44 (0.97)
------------ ------------ ----------- ----------------------
Dividends and distributions to shareholders
Dividends to shareholders from
net investment income.......................... (0.40) (0.41) (0.13) -
Distributions to shareholders from
net realized gains............................. (1.22) (0.26) - -
------------ ------------ ----------- ----------------------
Total dividends and
distributions to shareholders.................. (1.62) (0.67) (0.13) -
------------ ------------ ----------- ----------------------
Net asset value, end of period................... $42.38 $36.21 $30.14 $20.83
------------ ------------ ----------- ----------------------
------------ ------------ ----------- ----------------------
Total return (2)................................. 22.3% 22.8% 45.6% (4.4%)
------------ ------------ ----------- ----------------------
------------ ------------ ----------- ----------------------
Net assets, end of period........................ $466,791,224 $180,728,094 $99,188,147 $54,943,371
------------ ------------ ----------- ----------------------
Ratio of net operating expenses
to average net assets (5)..................... 0.87%(4) 0.84%(6) 0.66%(6) 0.66%(3,6)
------------ ------------ ----------- ----------------------
Ratio of net investment income
to average net assets....................... 1.42%(4) 1.66%(6) 1.85%(6) 2.34%(3,6)
------------ ------------ ----------- ----------------------
Portfolio turnover rate.......................... 32% 27% 22% 8%
------------ ------------ ----------- ----------------------
Average commission rate.......................... $0.0571 $0.0592 - -
------------ ------------ ----------- ----------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1997 were $290,421,930.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion of its fees.
If such waivers had not been in effect, the ratios of net operating expenses
to average net assets and the ratios of net investment income to average
net assets would have been 0.85% and 1.65%, respectively, for the year ended
December 31, 1996, 0.74% and 1.77%, respectively, for the year ended
December 31, 1995 and 0.96% and 2.04%, annualized, respectively, for the
period September 16, 1994 (commencement of operations) to December 31, 1994.
9
<PAGE>
OCC ACCUMULATION TRUST
MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------ September 16, 1994(1)
1997 1996 1995 to December 31, 1994
---------- ---------- ---------- ---------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period................................................ $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- -------------------
Income from investment operations
Net investment income................................. 0.05 0.04 0.05 0.01
Net realized gain (loss) on investments............... (0.00) (0.00) 0.00 --
---------- ---------- ---------- -------------------
Total income from investment operations........ 0.05 0.04 0.05 0.01
---------- ---------- ---------- -------------------
Dividends and distributions to shareholders
Dividends to shareholders from
net investment income............................. (0.05) (0.04) (0.05) (0.01)
Distributions to shareholders from net realized
gains............................................. -- (0.00) -- --
---------- ---------- ---------- -------------------
Total dividends and distributions to
shareholders............................... (0.05) (0.04) (0.05) (0.01)
---------- ---------- ---------- -------------------
Net asset value, end of period........................ $1.00 $1.00 $1.00 $1.00
---------- ---------- ---------- -------------------
---------- ---------- ---------- -------------------
Total return (2) .................................... 4.7% 4.5% 5.1% 1.2%
---------- ---------- ---------- -------------------
---------- ---------- ---------- -------------------
Net assets, end of period............................. $2,166,067 $5,279,042 $4,356,084 $3,519,526
---------- ---------- ---------- -------------------
Ratio of net operating expenses to average net
assets (5,6)........................................ 0.98% (4) 1.01% 1.00% 1.00% (3)
---------- ---------- ---------- -------------------
Ratio of net investment income to average net
assets (6).......................................... 4.57% (4) 4.43% 4.94% 4.13% (3)
---------- ---------- ---------- -------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1997 were $4,375,569.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank
(See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.06% and 4.50%, respectively, for the
year ended December 31, 1997, 1.30% and 4.13%, respectively, for the year
ended December 31, 1996, 1.14% and 4.80%, respectively, for the year ended
December 31, 1995 and 2.03% and 3.10%, annualized, respectively, for the
period September 16, 1994 (commencement of operations) to December 31,
1994.
10
<PAGE>
OCC ACCUMULATION TRUST
SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------- September 16, 1994(1)
1997 1996 1995 to December 31, 1994
------------ ----------- ----------- ---------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................ $22.61 $19.91 $17.38 $17.49
------------ ----------- ----------- ---------------------
Income from investment operations
Net investment income............................... 0.08 0.14 0.26 0.06
Net realized and unrealized gain (loss)
on investments.................................... 4.73 3.45 2.37 (0.17)
------------ ----------- ----------- ---------------------
Total income from investment operations........... 4.81 3.59 2.63 (0.11)
------------ ----------- ----------- ---------------------
Dividends and distributions to shareholders
Dividends to shareholders from
net investment income............................. (0.13) (0.25) (0.05) --
------------ ----------- ----------- ---------------------
Distributions to shareholders from
net realized gains................................ (0.92) (0.64) (0.05) --
------------ ----------- ----------- ---------------------
Total dividends and distributions to shareholders. (1.05) (0.89) (0.10) --
------------ ----------- ----------- ---------------------
Net asset value, end of period...................... $26.37 $22.61 $19.91 $17.38
------------ ----------- ----------- ---------------------
------------ ----------- ----------- ---------------------
Total return (2).................................... 22.2% 18.7% 15.2% (0.6%)
------------ ----------- ----------- ---------------------
------------ ----------- ----------- ---------------------
Net assets, end of period........................... $110,564,506 $34,256,671 $16,004,392 $9,210,443
------------ ----------- ----------- ---------------------
Ratio of net operating expenses to average net
assets (5)........................................ 0.97% (4) 0.93% (6) 0.74% (6) 0.74% (3,6)
------------ ----------- ----------- ---------------------
Ratio of net investment income
to average net assets............................ 0.64% (4) 1.03% (6) 1.75% (6) 1.22% (3,6)
------------ ----------- ----------- ---------------------
Portfolio turnover rate............................. 68% 50% 69% 32%
------------ ----------- ----------- ---------------------
Average commission rate............................. $0.0549 $0.0493 -- --
------------ ----------- ----------- ---------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1997 were $62,297,759.
(5) For fiscal periods ending after September 1, 1995, the ratios are
calculated to include expenses offset by earnings credits from a custodian
bank (See note 1G in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.01% and 0.92%, respectively, for the
year ended December 31, 1996, 0.99% and 1.50%, respectively, for the year
ended December 31, 1995 and 1.64% and 0.32%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
11
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each Portfolio of the Fund are
described below. Investment objectives of each Portfolio are fundamental
policies which cannot be changed for any Portfolio without a majority vote of
the shareholders of that Portfolio; investment policies are not fundamental
and may be adjusted by the Manager at any time, usually in response to its
perception of developments in the securities markets. The extent to which a
Portfolio will be able to achieve its distinct investment objectives depends
upon the Manager's ability to evaluate and develop the information it
receives into a successful investment program. Although each Portfolio will
be managed by experienced professionals, there can be no assurance that any
Portfolio will achieve its investment objectives. For Portfolios other than
the Money Market Portfolio, the values of the securities held in each
Portfolio will fluctuate and the net asset value per share at the time shares
are redeemed may be more or less than the net asset value per share at the
time of purchase. Investors should also refer to "Investment Techniques" for
additional information concerning the investment techniques employed for some
or all of the Portfolios.
INVESTMENT OBJECTIVES OF THE FUND PORTFOLIOS
Equity Portfolio
The investment objective of the Equity Portfolio is long term capital
appreciation through investment in securities (primarily equity securities) of
companies that are believed by the Manager to be undervalued in the marketplace
in relation to factors such as the companies' assets or earnings. It is the
Manager's intention to invest in securities of companies which in the Manager's
opinion possess one or more of the following characteristics: undervalued
assets, valuable consumer or commercial franchises, securities valuation below
peer companies, substantial and growing cash flow and/or a favorable price to
book value relationship. Investment policies aimed at achieving the Portfolio's
objective are set in a flexible framework of securities selection which
primarily includes equity securities, such as common stocks, preferred stocks,
convertible securities, rights and warrants in proportions which vary from time
to time. Under normal circumstances at least 65 percent of the Portfolio's
assets will be invested in equity securities. The Portfolio will invest
primarily in stocks listed on the New York Stock Exchange. In addition, it may
also purchase securities listed on other domestic securities exchanges,
securities traded in the domestic over-the-counter market and foreign securities
provided that they are listed on a domestic or foreign securities exchange or
represented by American depository receipts listed on a domestic securities
exchange or traded in domestic or foreign over-the-counter markets. Investments
of the Equity Portfolio are managed by Eileen Rominger, Managing Director of
Oppenheimer Capital. Ms. Rominger has been an analyst and portfolio manager at
Oppenheimer Capital since 1981. She graduated from Fairfield University with a
BA Cum Laude and earned an MBA in Finance from the Wharton Graduate School of
Business.
Mid Cap Portfolio
The investment objective of the Mid Cap Portfolio is long-term
capital appreciation. The portfolio seeks to achieve its objective through
investments primarily in equity securities of companies with market
capitalizations between $500 million and $5 billion which are believed to be
undervalued in the marketplace in relation to factors such as the company's
discretionary cash flow generation, earnings or assets. It is the Manager's
intention to invest in securities of companies which in the Manager's opinion
possess one or more of the following characteristics: undervalued assets,
valuable consumer or commercial franchises, strong shareholder-value oriented
management, and/or substantial and growing discretionary cash flow, and a
favorable price-to-intrinsic value relationship. Mid-cap companies may, in
some cases, enjoy some distinct business advantages by virtue of their size
and yet be undervalued in the market, in the following respects: (i) such
companies are generally studied by fewer stock analysts than large companies,
resulting in periodic valuation discrepancies; (ii) institutional investors,
which currently represent a majority of trading volume in shares of
publicly-traded companies, often must invest large pools of money and are
reluctant to own the resultant disproportionately large percentages of a
mid-cap company's securities; (iii) such companies may have available a
broader array of opportunities for value creation due to their relatively
smaller size. These opportunities could include: regional or product line
expansion, consolidating acquisitions of a related business, joint ventures,
divestiture of business units, or sale of the entire company; and (iv) such
companies may retain qualities that have been lost or diminished at their
larger
12
<PAGE>
counterparts including focus, a sharp sense of management accountability and
speedy response to competitive developments. Mid-cap companies also may
enjoy advantages over smaller companies, such as the stability of a longer
operating record, the critical mass to exploit international opportunities
and a more professional management. Investment policies aimed to achieve the
Portfolio's objective are set in a flexible framework of securities selection
which primarily includes equity and equity derivative securities, such as
common stocks, preferred stock, convertible securities, rights, warrants,
options and puts in proportions which vary from time to time. Under normal
circumstances at least 65 percent of the Portfolio's assets will be invested
in equity securities. The majority of securities purchased by the Portfolio
will be traded on the New York Stock Exchange, the American Stock Exchange or
in the over-the-counter market. In addition, the Portfolio may also purchase
foreign securities provided that they are listed on a domestic or foreign
securities exchange or traded in domestic or foreign over-the-counter
markets. The Portfolio may also purchase securities in initial public
offerings, or shortly after such offerings have been completed, when the
Manager believes those securities have greater-than-average market
appreciation potential. Investments in the Mid Cap Portfolio are managed by
Eileen Rominger - Managing Director of Oppenheimer Capital, Alan Gutmann -
Senior Vice President of Oppenheimer Capital, and Louis Goldstein - Senior
Vice President of Oppenheimer Capital. Mr. Gutmann joined Oppenheimer
Capital in 1991 after working in the merger and acquisition department of
Salomon Brothers, Inc. and Oppenheimer & Co., Inc. He graduated from the
Wharton School, Magna Cum Laude and earned an MA with honors from the Heiden
Institute in Jerusalem. Mr. Goldstein joined Oppenheimer Capital in 1991 and
formerly had been an analyst for David J. Greene & Co., Atalanta/Sosnoff
Capital and a corporate finance banking associate at the Blackstone Group.
He earned a BS, Summa Cum Laude and an MBA in Finance with honors from the
Wharton School of Business.
Small Cap Portfolio
The investment objective of the Small Cap Portfolio is to seek capital
appreciation through investments in a diversified portfolio consisting
primarily of equity securities of companies with market capitalizations of
under $1 billion. Smaller-capitalization companies are often under-priced
for the following reasons: (i) institutional investors, which currently
represent a majority of the trading volume in the shares of publicly-traded
companies, are often less interested in such companies because in order to
acquire an equity position that is large enough to be meaningful to an
institutional investor, such an investor may be required to buy a large
percentage of the company's outstanding equity securities and (ii) such
companies may not be regularly researched by stock analysts, thereby
resulting in greater discrepancies in valuation. The Portfolio may also
purchase securities in initial public offerings, or shortly after such
offerings have been completed, when the Manager believes that such securities
have greater-than-average market appreciation potential. Under normal
circumstances at least 65 percent of the Portfolio's assets will be invested
in equity securities. The majority of securities purchased by the Portfolio
will be traded on the New York Stock Exchange (the "NYSE"), the American
Stock Exchange or in the over-the-counter market, and will also include
options, warrants, bonds, notes and debentures which are convertible into or
exchangeable for, or which grant a right to purchase or sell, such
securities. In addition, the Portfolio may also purchase foreign securities
provided that they are listed on a domestic or foreign securities exchange or
are represented by American depository receipts listed on a domestic
securities exchange or traded in domestic or foreign over-the-counter
markets. The Small Cap Portfolio is managed by Timothy McCormack, Senior
Vice President of Oppenheimer Capital and Timothy Curro and Gavin Albert,
both of whom are Vice Presidents of Oppenheimer Capital. Mr. McCormack became
a portfolio manager of the Portfolio in May 1996. He joined Oppenheimer
Capital in 1994. From March 1993 to July 1994 Mr. McCormack was a security
analyst at U.S. Trust Company and prior to that he was a securities analyst
with Gabelli and Company. He has a Masters of Business Administration degree
from the Wharton School. Timothy Curro and Gavin Albert became portfolio
managers of the Portfolio on January 1, 1997. Mr. Curro has been a Vice
President of Oppenheimer Capital since November 1996. Prior thereto, he was
a general partner of Value Holdings, L.P., an investment partnership, from
May 1995 to November 1996, a Vice President in the equity research department
at UBS Securities Inc. from June 1994 through May 1995 and from January 1991
through February 1993 and was a partner with Omega Advisors, Inc. from March
1993 to March 1994. He has a Masters of Business Administration degree from
the University of California, Berkeley. Mr. Albert, Vice President of
Oppenheimer Capital since December 1996, joined the firm in September 1994 as
a research analyst. Prior thereto he was a management consultant for EDS
Energy Management in 1994, attended the Vanderbilt University Business School
from September 1992 to May 1994
13
<PAGE>
(with a Masters of Business Administration degree in finance and management)
and was a financial analyst in the Corporate Finance department of Texaco,
Inc. from 1990 to 1992.
Global Equity Portfolio
The investment objective of the Global Equity Portfolio is to seek long
term capital appreciation through pursuit of a global investment strategy
primarily involving equity securities. The Portfolio may invest anywhere in
the world with no requirement that any specific percentage of its assets be
committed to any given country. Under normal circumstances, at least 65
percent of the Portfolio's total assets will be invested in equity securities
in at least three different countries, one of which may be the United States.
Opportunities for capital appreciation may also be presented by debt
securities. The Portfolio may invest up to 35 percent of its total assets in
debt obligations with remaining maturities of one year or more of U.S. or
foreign corporate, governmental or bank issuers. It is the present intention
of the Portfolio, although not a fundamental policy, not to invest more than
5 percent of its total assets in debt securities rated below
investment-grade. Although there is no minimum rating for this category of
debt investments of the Portfolio, the Portfolio does not intend to invest in
bonds which are in default. Domestic investments of this Portfolio are
managed by Richard J. Glasebrook II, Managing Director of Oppenheimer
Capital. He joined Oppenheimer Capital in 1991. From 1983 to 1991, he was a
partner with Delafield Asset Management and from 1974 to 1970 he was a
portfolio manager and analyst with Morgan Guaranty Trust Co. Mr. Glasebrook
graduated with a BA from Kenyon College and received an MBA from the Harvard
Graduate School of Business Administration. The Portfolio's investments in
foreign securities are managed by Pierre Daviron, President and Chief
Investment Officer of Oppenheimer Capital International, a division of
Oppenheimer Capital created in 1993 and Managing Director of Oppenheimer
Capital. Previously, he was Chairman and Chief Executive Officer at Indosuez
Gartmore Asset Management, a division of Banque Indosuez, Paris, France.
Prior thereto he was a Managing Director in Mergers and Acquisitions at J.P.
Morgan. Mr. Daviron is a graduate of Hautes Etudes Commerciales in Paris.
U.S. GOVERNMENT INCOME PORTFOLIO
The investment objective of the U.S. Government Income Portfolio is to seek
a high level of current income together with protection of capital by investing
exclusively in debt obligations, including mortgage-backed securities, issued or
guaranteed by the United States government, its agencies or instrumentalities
("U.S. government securities"). Among the securities the Portfolio may purchase
are mortgage-backed securities guaranteed by the Government National Mortgage
Association ("Ginnie Mae"), the Federal Home Loan National Mortgage Corporation
("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae").
The Portfolio normally intends to maintain at least 65 percent of its assets in
U.S. Government Securities. The average maturity of the Portfolio's investments
will vary based on market conditions. It is estimated that the average dollar
weighted maturity of the Portfolio will be between three and ten years. The
U.S. Government Income Portfolio is managed by Vikki Hanges, Senior Vice
President of Oppenheimer Capital. She joined Oppenheimer Capital in 1982. Ms.
Hanges earned her BS from Cornell University.
Money Market Portfolio
The investment objective of the Money Market Portfolio is to seek
maximum current income consistent with stability of principal and liquidity.
The Portfolio may invest only in money market instruments and corporate
obligations denominated in U.S. dollars which have a maturity at the time of
investment of one year or less within the meaning of the Investment Company
Act of 1940 (the "Act") and repurchase and reverse repurchase agreements
which extend for no more than seven days. The Portfolio does not presently
intend to enter into reverse repurchase agreements. Money market instruments
include U.S. government securities, short-term bank obligations such as
certificates of deposit, bankers' acceptances and letters of credit and
corporate commercial paper. All investments will be of high quality as
determined by one or more nationally-recognized statistical rating
organizations or, in the case of non-rated securities, of comparable quality
in accordance with standards and procedures established by the Board of
Trustees. It is expected that all or almost all of the Portfolio's income
will
14
<PAGE>
come from interest and that little or no income will be the result of
capital gains. (See "Additional Information on Investment Objectives and
Policies" for a more complete description of the specific securities.)
Managed Portfolio
The investment objective of the Managed Portfolio is to achieve growth
of capital over time through investment in a portfolio consisting of common
stocks, bonds and cash equivalents, the percentages of which will vary based
on the Manager's assessments of the relative outlook for such investments.
In seeking to achieve its investment objective, the types of equity
securities in which the Portfolio may invest are likely to be the same as
those in which the Equity Portfolio invests, although securities of the type
in which the Small Cap Portfolio invests may, to a lesser extent, be
included. Debt securities are expected to be predominantly investment grade
intermediate to long term U.S. Government and corporate debt, although the
Portfolio will also invest in high quality short term money market and cash
equivalent securities and may invest almost all of its assets in such
securities when the Manager deems it advisable in order to preserve capital.
In addition, the Portfolio may also purchase foreign securities provided that
they are listed on a domestic or foreign securities exchange or are
represented by American depository receipts listed on a domestic securities
exchange or traded in domestic or foreign over-the-counter markets.
The allocation of the Portfolio's assets among the different types of
permitted investments will vary from time to time based upon the Manager's
evaluation of economic and market trends and its perception of the relative
values available from such types of securities at any given time. There is
neither a minimum nor a maximum percentage of the Portfolio's assets that
may, at any given time, be invested in any of the types of investments
identified above. Consequently, while the Portfolio will earn income to the
extent it is invested in bonds or cash equivalents, the Portfolio does not
have any specific income objective. Although there is neither a minimum nor
maximum percentage of the Portfolio's assets that may, at any given time, be
invested in any of the types of investments identified above, it is
anticipated that most of the time the majority of the Portfolio's assets will
be invested in common stocks. The investments of the Managed Portfolio are
managed by Richard J. Glasebrook II, Managing Director of Oppenheimer
Capital.
ADDITIONAL INFORMATION ON INVESTMENT OBJECTIVES AND POLICIES
For the Equity, the Mid Cap, the Small Cap and the Global Equity
Portfolios, at times when the investment climate is viewed as favorable,
common stocks will be heavily emphasized. Under normal circumstances, at
least 65 percent of each Portfolio's assets will be invested in common stocks
or securities convertible into common stocks.
Under normal conditions, no less than 65 percent of the assets of the
U.S. Government Income Portfolio will be invested in the debt securities
identified under "U.S. Government Income Portfolio."
In the event that future economic or financial conditions adversely
affect equity securities, or stocks are considered overvalued, each of the
Equity, Mid Cap, Small Cap and Global Equity Portfolios may invest a
substantial portion of its assets in debt securities, with an emphasis on
money market instruments or cash and cash equivalents. The U.S. Government
Income Portfolio may increase the proportion of its assets which are invested
in money market instruments or cash in the event that the Manager deems such
investments advisable to preserve capital.
Each Portfolio (other than the Money Market Portfolio) will in the
normal course have varying amounts of cash assets which have not yet been
invested in accordance with its objectives. This cash will be temporarily
invested in high quality short term money market securities and cash
equivalents.
15
<PAGE>
Regulations under Section 817(h) of the Internal Revenue Code ("IRC
817(h)") require each Portfolio to diversify its investments. To comply with
these regulations each Portfolio is required to diversify its investments so
that on the last day of each quarter of a calendar year no more than 55
percent of the value of its total assets is represented by any one
investment, no more than 70 percent is represented by any two investments, no
more than 80 percent is represented by any three investments, and no more
than 90 percent is represented by any four investments. For this purpose,
securities of a given issuer generally are treated as one investment, but
each U.S. Government agency and instrumentality is treated as a separate and
distinct issuer. As such, any security issued, guaranteed, or insured (to
the extent so guaranteed or insured) by the U.S. or an agency or
instrumentality of the U.S. is treated as a security issued by the U.S.
Government or its agency or instrumentality, whichever is applicable. These
diversification rules limit the amount that any Portfolio, and in particular
the U.S. Government Income Portfolio can invest in any single issuer,
including direct obligations of the U.S. Treasury, to 55 percent of the
Portfolio's total assets at the end of any calendar quarter.
SECURITIES IN WHICH THE MONEY MARKET PORTFOLIO INVESTS
(1) Securities issued or guaranteed by the U.S. Government.
(2) Obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government. Some of such obligations may be supported by the
full faith and credit of the U.S. Treasury while others may be
supported only by the credit of the particular Federal agency or
instrumentality issuing the obligation.
(3) Certificates of deposit, bankers' acceptances and letters of credit of
prime quality of U.S. banks and savings and loan associations and
their foreign branches (Eurodollars), foreign banks, and U.S. branches
of foreign banks (Yankees) having total assets in excess of $500
million.
(4) Certificates of deposit of prime quality fully insured as to principal
by the Federal Deposit Insurance Corp.
(5) Commercial paper of prime quality.
(6) Corporate notes, bonds and debentures that have a remaining maturity
of 365 calendar days or less if a class of short term debt comparable
with the security issued by the same issuer is of prime quality.
(7) Repurchase agreements involving securities listed above, which are
described on page 19 of this Prospectus.
The Portfolio operates under Rule 2a-7 adopted under the Act (the
"Rule") which, if certain conditions are met, allows the Portfolio to use the
amortized cost method of valuing its portfolio securities to determine its
net asset value per share. As long as the Portfolio continues to use the
Rule, it must abide by certain conditions. Some of those conditions relate
to portfolio management: (i) it must maintain a dollar-weighted average
portfolio maturity not in excess of 90 days; (ii) it must limit its
investments, including repurchase agreements, to those instruments which are
denominated in U.S. dollars, and which are of "prime quality" as determined
by any major rating service or in the case of any instrument that is not
rated, of comparable quality as determined by the Board of Trustees in
accordance with procedures adopted pursuant to the Rule; and (iii) it may not
purchase any instruments with a remaining maturity of more than thirteen
months within the meaning of the Act. For the purposes of this prospectus,
prime quality shall mean the security (or the issuer for a comparable
security) is rated in one of the two highest rating categories for short-term
debt obligations by any two of Moody's Investors Service, Inc. ("Moodys"),
Standard & Poor's Corporation ("S&P"), Fitch Investors Service, Inc.
("Fitch"), Duff & Phelps, Inc. ("Duff & Phelps") or Thomson's BankWatch,
Inc., or by one of such rating agencies if only one rating agency has issued
a rating with respect to the security, or, if not rated, judged by the
Manager pursuant to criteria adopted by the Fund's Board of Trustees to be of
comparable quality. See the Appendix for a description of ratings. In
addition, the Rule requires that investments by the Money Market Portfolio
which do not satisfy one of the following requirements are limited in the
aggregate to 5 percent of the Portfolio's assets in regard to issues and 1
16
<PAGE>
percent of assets (or $1 million if greater) in regard to any one issuer of
such issues: (i) issues rated in the highest category (or the issuer is so
rated for a comparable security) by at least two of such rating agencies; or
(ii) if rated by only one agency, rated in the highest category; or (iii) if
unrated determined by the Board of Trustees to be of quality comparable to
issues which qualify under (i) or (ii). For further information, see
"Determination of Net Asset Value" in the Additional Statement.
MANAGEMENT OF ASSETS
The Manager intends to manage each Portfolio's assets by buying and
selling securities to help attain its investment objective. This may result
in increases or decreases in a Portfolio's current income available for
distribution to its shareholders. While none of the Portfolios is managed
with the intent of generating short-term capital gains, each of the
Portfolios may dispose of investments (including money market instruments)
regardless of the holding period if, in the opinion of the Manager, an
issuer's creditworthiness or perceived changes in a company's growth
prospects or asset value make selling them advisable. Such an investment
decision may result in capital gains or losses and could result in a high
portfolio turnover rate during a given period, resulting in increased
transaction costs related to equity securities. Disposing of debt securities
in these circumstances should not increase direct transaction costs since
debt securities are normally traded on a principal basis without brokerage
commissions. However, such transactions do involve a mark-up or mark-down of
the price.
During periods of unusual market conditions when the Manager believes
that investing for defensive purposes is appropriate, or in order to meet
anticipated redemption requests, part or all of the assets of one or more of
the Portfolios may be invested in cash or cash equivalents including
obligations listed above.
The "Financial Highlights" table shows the Portfolios' portfolio
turnover rates. The portfolio turnover rates of the Portfolios cannot be
accurately predicted. Nevertheless, it is anticipated that the Equity, Mid
Cap, Small Cap, U.S. Government Income, Managed and Global Equity Portfolios
will have an annual turnover rate (excluding turnover of securities having a
maturity of one year or less) of less than 100%. A 100 percent annual
turnover rate would occur, for example, if all the securities in a
Portfolio's investment portfolio were replaced once in a period of one year.
Because the Money Market Portfolio will consist of securities with a maturity
of one year or less, the turnover rate as defined is not meaningful. Because
of the short-term nature of its investments, it is anticipated that the
number of purchases and sales or maturities of such securities will be
substantial.
RISK ASPECTS OF THE INDIVIDUAL PORTFOLIOS
MONEY MARKET PORTFOLIO. The Money Market Portfolio conforms to
requirements which permit it to maintain a constant net asset value of $1.00
per share through use of the amortized cost method of valuation. The Money
Market Portfolio may invest in U.S. dollar denominated securities of foreign
branches of U.S. banks and U.S. branches of foreign banks. These investments
involve risks that are different from investments in securities of U.S.
banks. While there is no risk from exchange rate fluctuations, there may be
risk of future unfavorable political and economic developments, possible
withholding taxes, seizure of foreign deposits, currency controls, interest
limitations or other governmental restrictions which might affect payment of
principal or interest. Additionally, there may be less public information
available about foreign banks and their branches.
MANAGED AND U.S. GOVERNMENT INCOME PORTFOLIOS. An investment in the
Managed Portfolio will entail both market and financial risk, the extent of
which depends on the amount of the Portfolio's assets which are committed to
equity, longer term debt or money market securities at any particular time.
The U.S. Government Income Portfolio is expected to have greater interest
rate risk due to the Portfolio's primary investments in mortgage-backed
securities. As the Managed Portfolio may and the U.S. Government Income
Portfolio will invest in mortgage-backed securities, such securities, while
similar to other fixed-income securities, involve the additional risk of
prepayment because mortgage prepayments are passed through to the holder of
the mortgage-backed security and must be reinvested. Prepayments of mortgage
principal reduce the stream of future payments and generate cash which must
be reinvested. When interest rates fall, prepayments tend to rise. As such
these Portfolios may have to reinvest that portion of their respective assets
invested in such securities more frequently when interest rates are low than
when interest rates are high.
17
<PAGE>
MID CAP PORTFOLIO. The Mid Cap Portfolio is expected to have greater
risk exposure and reward potential than a portfolio which invests primarily
in larger-capitalization companies. The trading volumes of securities of
mid-capitalization companies are normally less than those of
larger-capitalization companies. This often translates into greater price
swings. The waiting period for the achievement of an investor's objectives
might be longer since these securities are not as closely monitored by
research analysts. Thus, it takes more time for investors to become aware of
fundamental changes or other factors which have motivated the Portfolio's
purchase. However, mid-capitalization companies often achieve higher growth
rates and may experience higher failure rates than do large-capitalization
companies.
SMALL CAP PORTFOLIO. The Small Cap Portfolio is expected to have
greater risk exposure and reward potential than a portfolio which invests
primarily in larger-capitalization companies. The trading volumes of
securities of smaller-capitalization companies are normally less than those
of larger-capitalization companies. This often translates into greater price
swings, both upward and downward. The waiting period for the achievement of
an investor's objectives might be longer since these securities are not
closely monitored by research analysts and, thus, it takes more time for
investors to become aware of fundamental changes or other factors which have
motivated the Portfolio's purchase. Smaller-capitalization companies often
achieve higher growth rates and experience higher failure rates than do
larger-capitalization companies.
ADDITIONAL RISKS OF FOREIGN SECURITIES: The Global Equity, Equity, Mid
Cap, Small Cap and Managed Portfolios may purchase foreign securities that
are listed on a domestic or foreign securities exchange, traded in domestic
or foreign over-the counter markets or represented by American Depository
Receipts. There is no limit to the amount of such foreign securities the
Portfolios may acquire. It will be the general practice of the Global Equity
Portfolio to invest in foreign equity securities. Certain factors and risks
are presented by investment in foreign securities which are in addition to
the usual risks inherent in domestic securities. Foreign companies are not
necessarily subject to uniform accounting, auditing and financial reporting
standards or other regulatory requirements comparable to those applicable to
U.S. companies. Thus, there may be less available information concerning
non-U.S. issuers of securities held by a Portfolio than is available
concerning U.S. companies. In addition, with respect to some foreign
countries, there is the possibility of nationalization, expropriation or
confiscatory taxation; income earned in the foreign nation being subject to
taxation, including withholding taxes on interest and dividends, or other
taxes imposed with respect to investments in the foreign nation; limitations
on the removal of securities, property or other assets of a fund;
difficulties in pursuing legal remedies and obtaining judgments in foreign
courts, or political or social instability or diplomatic developments which
could affect U.S. investments in those countries. For a description of the
risks of possible losses through holding of securities in foreign custodian
banks and depositories, see "Investment of Assets" in the Additional
Statement.
Securities of many non-U.S. companies may be less liquid and their
prices more volatile than securities of comparable U.S. companies. Non-U.S.
stock exchanges and brokers are generally subject to less governmental
supervision and regulation than in the U.S. and commissions on foreign stock
exchanges are generally higher than negotiated commissions on U.S.
transactions. In addition, there may in certain instances be delays in the
settlement of non-U.S. stock exchange transactions. Certain countries
restrict foreign investments in their securities markets. These restrictions
may limit or preclude investment in certain countries, industries or market
sectors, or may increase the cost of investing in securities of particular
companies. Purchasing the shares of investment companies which invest in
securities of a given country may be the only or the most efficient way to
invest in that country. This may require the payment of a premium above the
net asset value of such investment companies and the return will be reduced
by the operating expenses of those investment companies.
A decline in the value of the U.S. dollar against the value of any
particular currency will cause an increase in the U.S. dollar value of a
Portfolio's holdings denominated in such currency. Conversely, a decline in
the value of any particular currency against the U.S. dollar will cause a
decline in the U.S. dollar value of the Portfolio's holdings of securities
denominated in such currency. Some foreign currency values may be volatile
and there is the possibility of governmental controls on currency exchange or
governmental intervention in currency markets which could adversely affect a
Portfolio. The Portfolios do not intend to speculate in foreign currency in
connection with the purchase or sale of securities on a foreign securities
exchange but may enter into foreign currency contracts to hedge their foreign
currency exposure. While those transactions may minimize the impact of
currency appreciation and depreciation, the Portfolios will bear a cost for
entering into the transaction and such
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transactions do not protect against a decline in the security's value
relative to other securities denominated in that currency.
It is expected that the Global Equity Portfolio will invest in American
Depository Receipts ("ADRs"),European Depository Receipts ("EDRs"), or Global
Depository Receipts ("GDRs") which are sponsored by persons other than the
underlying issuers. ADRs are U.S. dollar-denominated securities designed for
use in the U.S. securities markets. They represent and may be converted into
the underlying foreign security. EDRs are designed for use in the European
securities market. Issuers of the stock of such unsponsored ADRs are not
obligated to disclose material information in the United States and,
therefore, there may not be a correlation between such information and the
market value of such ADRs.
EMERGING MARKET COUNTRIES: Certain developing countries may have relatively
unstable governments, economies based on only a few industries that are
dependent upon international trade and reduced secondary market liquidity.
Foreign investment in certain emerging market countries is restricted or
controlled in varying degrees. In the past, securities in these countries
have experienced greater price movement, both positive and negative, than
securities of companies located in developed countries. Lower-rated
high-yielding emerging market securities may be considered to have
speculative elements.
HIGH YIELD SECURITIES: It is the present intention of the Manager with
respect to each of the Equity, Mid Cap, Small Cap, Global Equity and Managed
Portfolios to invest no more than 5 percent of its net assets in bonds rated
below Baa3 by Moody's or BBB- by S&P (commonly known as "junk bonds"). In
the event that the Manager intends in the future to invest more than 5
percent of the net assets of any such Portfolio in junk bonds, appropriate
disclosures will be made to existing and prospective shareholders. For
information about the possible risks of investing in junk bonds see
"Investment of Assets" in the Additional Statement.
OPTIONS AND FUTURES: To the extent permitted by applicable state law,
the Global Equity, Mid Cap, Small Cap and Equity Portfolios may engage in
futures contracts and options on futures contracts for bona fide hedging or
other non-speculative purposes. The Global Equity and Small Cap Portfolios
may also engage in options on stock indices. The Mid Cap, Small Cap and
Equity Portfolios may write covered call options on individual securities and
the Mid Cap Portfolio may write uncovered calls and puts. These Portfolios
will not enter into any leveraged futures transactions. Different uses of
futures and options have different risk and return characteristics.
Generally, selling futures contracts, purchasing put options and writing call
options are strategies designed to protect against falling security prices
and can limit potential gains if prices rise. Purchasing futures contracts,
purchasing call options and writing put options are strategies whose returns
tend to rise and fall together with securities prices and can cause losses if
prices fall. If securities prices remain unchanged over time, option writing
strategies tend to be profitable while option buying strategies tend to be
unprofitable. For more information about Options and Futures see "Investment
Techniques" in this Prospectus and "Investment of Assets" in the Additional
Statement.
INVESTMENT TECHNIQUES
The investment techniques or instruments described below are used for
the Portfolios' investment programs:
SHORT-TERM INVESTMENTS. Each Portfolio, other than the Money Market
Portfolio, typically invests a part of its assets in various types of U.S.
Government securities and high quality, short-term debt securities with
remaining maturities of one year or less ("money market instruments"). The
Money Market Portfolio invests all of its assets in these types of
securities. This type of short-term investment is made to provide liquidity
for the purchase of new investments and to effect redemptions of shares. The
money market instruments in which each Portfolio may invest include
government obligations, certificates of deposit, bankers' acceptances,
commercial paper, short-term corporate securities and repurchase agreements.
REPURCHASE AGREEMENTS. Each Portfolio may acquire securities subject to
repurchase agreements. Under a typical repurchase agreement, a Portfolio would
acquire a debt security for a relatively short period
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(usually for one day and not for more than one week) subject to an obligation
of the seller to repurchase and of the Portfolio to resell the debt security
at an agreed-upon higher price, thereby establishing a fixed investment
return during the Portfolio's holding period. A Portfolio will enter into
repurchase agreements with member banks of the Federal Reserve System having
total assets in excess of $500 million and with dealers registered with the
SEC. Under each repurchase agreement the selling institution will be
required to maintain as collateral securities whose market value is at least
equal to the repurchase price. Repurchase agreements could involve certain
risks in the event of default or insolvency of the selling institution,
including costs of disposing of securities held as collateral and any loss
resulting from delays or restrictions upon the Portfolio's ability to dispose
of securities. Pursuant to guidelines established by the Portfolio's Board
of Trustees, the Manager considers the creditworthiness of those banks and
non-bank dealers with which a Portfolio enters into repurchase agreements and
monitors on an ongoing basis the value of securities held as collateral to
ensure that such value is maintained at the required level. A Portfolio will
not enter into a repurchase agreement with a dealer if the agreement has a
maturity beyond seven days. The staff of the SEC has taken the position that
repurchase agreements are loans collateralized by the underlying securities.
LOANS OF PORTFOLIO SECURITIES. Each Portfolio may lend its portfolio
securities if such loans are secured continuously by collateral (cash, U.S.
Government or agency obligations or letters of credit) maintained on a daily
basis in an amount at least equal at all times to the market value of the
securities loaned and if the Portfolio does not incur any fees (other than
the transaction fees of its custodian bank) in connection with such loans. A
Portfolio may call the loan at any time on five days' notice and reacquire
the loaned securities. During the loan period, the Portfolio would continue
to receive the equivalent of the interest paid by the issuer on the
securities loaned and would also have the right to receive the interest on
investment of the cash collateral in short-term debt instruments. A portion
of either or both kinds of such interest may be paid to the borrower of such
securities. It is not intended that the value of the securities loaned, if
any, would exceed 10 percent of the value of the total assets of the Equity,
Mid Cap, Small Cap, Managed and Money Market Portfolios and 33 1/3 percent of
the value of the total assets of the U.S. Government Income and Global Equity
Portfolios. Securities loans must also meet applicable tests under the
Internal Revenue Code. A Portfolio could experience various costs or loss if
a borrower defaults on its obligation to return the borrowed securities.
OPTIONS AND FUTURES. To the extent permitted by applicable state law,
the Global Equity, Mid Cap, Small Cap and Equity Portfolios may engage in
options and futures transactions. The Global Equity Portfolio may purchase
and sell financial futures contracts (including bond futures contracts and
index futures contracts), forward foreign currency contracts, foreign
currency futures contracts, options on futures contracts and stock indices
and options on currencies for bona fide hedging or other non-speculative
purposes. The Mid Cap, Small Cap and Equity Portfolios may engage in futures
contracts or options on futures contracts for bona fide hedging or other
non-speculative purposes and to write calls on individual securities. The
Mid Cap, Small Cap, Equity and Managed Portfolios may also enter into forward
foreign currency contracts to purchase or sell foreign currencies in
connection with any transactions in foreign securities. The Small Cap
Portfolio may also engage in options on stock indices. When any of such
Portfolios anticipate a significant market or market sector advance, the
purchase of a futures contract affords a hedge against not participating in
the advance at a time when such Portfolio is not fully invested
("anticipatory hedge"). Such a purchase of a futures contract would serve as
a temporary substitute for the purchase of individual securities, which then
may be purchased in an orderly fashion once the market has stabilized. As
individual securities are purchased, an equivalent amount of futures
contracts could be terminated by offsetting sales. The Portfolios may sell
futures contracts in anticipation of or in a general market or market sector
decline that may adversely affect the market value of such Portfolio's
securities ("defensive hedge"). To the extent that the Portfolios'
securities change in value in correlation with the underlying security or
index, the sale of futures contracts would substantially reduce the risk to
the Portfolios of a market decline and by so doing, provide an alternative to
the liquidation of securities positions in the Portfolios with attendant
transaction costs. So long as the Commodities Futures Trading Commission
rules so require, none of the Portfolios will enter into any financial
futures or options contract unless such transactions are for bona fide
hedging purposes, or for other purposes only if the aggregate initial margins
and premiums required to establish such non-hedging positions would not
exceed 5 percent of the liquidation value of such Portfolio's assets. When
writing put options, the Fund, on behalf of the Portfolio, will maintain in a
segregated account at its Custodian liquid assets with a value equal to at
least the exercise price of the option to secure its obligation to pay for
the underlying security. As a result, such Portfolio forgoes the opportunity
of trading the segregated assets or writing calls against those assets.
There may not be a
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complete correlation between the price of options and futures and the market
prices of the underlying securities. The Portfolio may lose the ability to
profit from an increase in the market value of the underlying security or may
lose its premium payment. If due to a lack of a market a Portfolio could not
effect a closing purchase transaction with respect to an OTC option, it would
have to hold the callable securities until the call lapsed or was exercised.
MORTGAGE-BACKED SECURITIES. The U.S. Government Income and Managed
Portfolios may invest in a type of mortgage-backed security known as modified
pass-through certificates. Each certificate evidences an interest in a
specific pool of mortgages that have been grouped together for sale and
provides investors with payments of interest and principal. The issuer of
modified pass-through certificates guarantees the payment of the principal
and interest whether or not the issuer has collected such amounts on the
underlying mortgage.
The average life of these securities varies with the maturities of the
underlying mortgage instruments (generally up to 30 years) and with the
extent of prepayments on the mortgages themselves. Any such prepayments are
passed through to the certificate holder, reducing the stream of future
payments. Prepayments tend to rise in periods of falling interest rates,
decreasing the average life of the certificate and generating cash which must
be invested in a lower interest rate environment. This could also limit the
appreciation potential of the certificates when compared to similar debt
obligations which may not be paid down at will, and could cause losses on
certificates purchased at a premium or gains on certificates purchased at a
discount. Ginnie Mae certificates represent pools of mortgages insured by
the Federal Housing Administration or the Farmers Home Administration or
guaranteed by the Veteran's Administration. The guarantee of payments under
these certificates is backed by the full faith and credit of the United
States. Fannie Mae is a government-sponsored corporation owned entirely by
private stockholders. The guarantee of payments under these instruments is
that of Fannie Mae only. They are not backed by the full faith and credit of
the United States but the U.S. Treasury may extend credit to Fannie Mae
through discretionary purchases of its securities. The U.S. Government has
no obligation to assume the liabilities of Fannie Mae. Freddie Mac is a
corporate instrumentality of the United States government whose stock is
owned by the Federal Home Loan Banks. Certificates issued by Freddie Mac
represent interest in mortgages from its portfolio. Freddie Mac guarantees
payments under its certificates but this guarantee is not backed by the full
faith and credit of the United States and Freddie Mac does not have authority
to borrow from the U.S. Treasury.
The coupon rate of these instruments is lower than the interest rate on
the underlying mortgages by the amount of fees paid to the issuing agencies,
usually approximately 1/2 of 1 percent. It is not anticipated that the
Portfolios' investments will have any particular maturity. Mortgage-backed
securities, due to the scheduled periodic repayment of principal, and the
possibility of accelerated repayment of underlying mortgage obligations,
fluctuate in value in a different manner than other, non-redeemable debt
securities. The U.S. Government Income and Managed Portfolios also may
invest in "collateralized mortgage obligations" ("CMO's") which are debt
obligations secured by mortgage-backed securities where the investor looks
only to the issuer of the security for payment of principal and interest.
PORTFOLIO TRANSACTIONS. The Manager's primary consideration when
executing security transactions with broker-dealers is to obtain, and
maintain the availability of, execution at the most favorable prices and in
the most effective manner possible. The Manager may select CIBC Oppenheimer
Corp. ("CIBC Oppenheimer"), a former affiliate of the Manager, to execute
transactions for the Portfolios. Selection of broker-dealers to execute
portfolio transactions must be done in a manner consistent with the foregoing
primary consideration, the "Rules of Fair Practice" of the National
Association of Securities Dealers, Inc. and such other policies as the Board
of Trustees may determine. (For a further discussion of portfolio trading,
see the Additional Statement, "Investment Management and Other Services.")
INVESTMENT RESTRICTIONS
Each Portfolio is subject to certain investment restrictions which,
together with its investment objective, are fundamental policies changeable
only by shareholder vote. (The restrictions in 1, 2 and 3 do not apply to
U.S. Government securities.) Under some of those restrictions, each
Portfolio may not:
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1. Invest more than 5 percent of the value of its total assets in the
securities of any one issuer, or purchase more than 10 percent of the voting
securities, or more than 10 percent of any class of security, of any issuer
(for this purpose all outstanding debt securities of an issuer are considered
as one class and all preferred stock of an issuer are considered as one
class).
2. Concentrate its investments in any particular industry, but if
deemed appropriate for attaining its investment objective, a Portfolio may
invest up to 25 percent of its total assets (valued at the time of
investment) in any one industry classification used by that Portfolio for
investment purposes.
3. Invest more than 5 percent of the value of its total assets in
securities of issuers having a record, together with predecessors, of less
than three years of continuous operation.
4. Make loans, except through the purchase of U.S. Government
securities and corporate debt obligations, repurchase agreements or lending
portfolio securities as described above under "Loans of Portfolio Securities".
5. Borrow money in excess of 10 percent of the value of its total
assets. It may borrow only as a temporary measure for extraordinary or
emergency purposes and will make no additional investments while such
borrowings exceed 5 percent of the total assets. Such prohibition against
borrowing does not prohibit escrow or other collateral or margin arrangements
in connection with the hedging instruments which a Portfolio is permitted to
use by any of its other fundamental policies.
6. Invest more than 15 percent of its assets in illiquid securities
(securities for which market quotations are not readily available) and
repurchase agreements which have a maturity of longer than seven days.
(Money Market Portfolio may not invest more than 10 percent of its assets in
illiquid securities.) Other investment restrictions are described in the
Additional Statement.
All percentage limitations apply immediately after a purchase or initial
investment and any subsequent change in any applicable percentage resulting
from market fluctuations or other changes in the amount of total assets does
not require elimination of any security from a Portfolio.
MANAGEMENT OF THE FUND
The Fund's Board of Trustees has overall responsibility for the
management of the Fund under the laws of Massachusetts governing the
responsibilities of trustees of a Massachusetts business trust. In general,
such responsibilities are comparable to those of directors of a Massachusetts
business corporation. The Board of Trustees of the Fund has undertaken to
monitor the Fund for the existence of any material irreconcilable conflict
between the interests of variable annuity Contractowners, variable life
insurance Contractowners and Qualified Plans due to the difference of tax
treatment and other considerations, and shall report any such conflict to the
boards of the respective life insurance companies which use the Fund as an
investment vehicle for their respective variable annuity and life insurance
contracts and to the Qualified Plans. The Boards of Directors of those life
insurance companies and the Manager have agreed to be responsible for
reporting any potential or existing conflicts to the Trustees of the Fund. If
a material irreconcilable conflict exists that affects those life insurance
companies, those life insurance companies have agreed, at their own cost, to
remedy such conflict up to and including establishing a new registered
management investment company and segregating the assets underlying the
variable annuity contracts and the variable life insurance contracts.
Qualified Plans which acquire more than 10 percent of the assets of the Fund
will be required to report any potential or existing conflicts to the
Trustees of the Fund, and if a material irreconcilable conflict exists, to
remedy such conflict, up to and including redeeming Shares of the Portfolios
held by the Qualified Plans. The Additional Statement contains information
about the Trustees and Officers.
THE ADVISORY AGREEMENT. The Manager is responsible for management of the
Fund's business. Pursuant to the investment advisory agreement (the "Advisory
Agreement") with the Fund, and subject to the authority of the Board of
Trustees, the Manager supervises the investment operations of each Portfolio,
furnishes
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advice and recommendations with respect to investments, investment policies
and the purchase and sale of securities and provides certain administrative
services for the Fund.
Under the Advisory Agreement the annual management fee is computed at an
annual rate of .80 percent on the first $400 million, .75 percent on the next
$400 million and .70 percent thereafter of the average daily net assets for
the Equity, Mid Cap, Global Equity, Managed and Small Cap Portfolios, .60
percent of the average daily net assets of the U.S. Government Income
Portfolio, and .40 percent of the average daily net assets of the Money
Market Portfolio.
Under the Advisory Agreement, each Portfolio is responsible for bearing
organizational expenses, taxes and governmental fees; brokerage commissions,
interest and other expenses incurred in acquiring and disposing of portfolio
securities; trustees fees, out of pocket travel expenses and other expenses
for trustees who are not interested persons; legal, accounting and audit
expenses; custodian, dividend disbursing and transfer agent fees; and other
expenses not expressly assumed by the Manager under the Advisory Agreement,
which is discussed below. The Manager will reimburse the Fund such that the
total operating expenses (net of any expense offsets) of the Global Equity
Portfolio of the Fund do not exceed 1.25 percent of its average daily net
assets and so that the total operating expenses (net of any expense offsets)
of each of the other Portfolios of the Fund do not exceed 1.00% of their
respective average daily net assets.
The Manager is a subsidiary of Oppenheimer Capital, a registered
investment adviser with approximately $67.6 billion in assets under
management on March 31, 1998. All investment management services performed
under the Advisory Agreement are performed by employees of Oppenheimer
Capital. On November 4, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a
registered investment adviser, and its affiliates acquired control of
Oppenheimer Capital and its subsidiary OpCap Advisors, the Manager of the
Fund. PIMCO Advisors and its affiliates (not including Oppenheimer Capital)
had $145.5 billion in assets under management on February 28, 1998. A new
Advisory Agreement (on identical terms as the previous Advisory Agreement)
between the Fund and OpCap Advisors became effective November 5, 1997. The
new Advisory Agreement was approved by the shareholders of each Portfolio of
the Fund at a Special Meeting of Shareholders held on October 14, 1997. On
November 30, 1997, Oppenheimer Capital merged with a subsidiary of PIMCO
Advisors and, as a result, Oppenheimer Capital and OpCap Advisors became
indirect wholly-owned subsidiaries of PIMCO Advisors. PIMCO Advisors has two
general partners: PIMCO Partners, G.P. ("PIMCO G.P.") a California general
partnership, and PIMCO Advisors Holdings L.P. (formerly Oppenheimer Capital,
L.P.), an NYSE-listed Delaware limited partnership of which PIMCO G.P. is the
sole general partner. PIMCO GP beneficially owns or controls (through its
general partner interest in PIMCO Advisors Holdings, L.P., formerly
Oppenheimer Capital, L.P.) greater than 80% of the units of limited
partnership ("Units") of PIMCO Advisors. PIMCO GP has two general partners.
The first of these is PIMCO Holding LLC, a Delaware limited liability company
and an indirect wholly-owned subsidiary of Pacific Life Insurance Company
("Pacific Life"). The managing general partner of PIMCO GP is PIMCO Partners
L.L.C. ("PPLLC"), a California limited liability company. PPLLC's members
are the Managing Directors (the "PIMCO Managers") of Pacific Investment
Management Company, a subsidiary of PIMCO Advisors (the "PIMCO
Subpartnership"). The PIMCO Managers are: William H. Gross, Dean S.
Meiling, James F. Muzzy, William F. Podlich, III, Brent R. Harris, John L.
Hague, William S. Thompson Jr., William S. Powers, David H. Edington,
Benjamin Trosky, William R. Benz, II and Lee R. Thomas, III. PIMCO Advisors
is governed by a Management Board, which consists of sixteen members,
pursuant to a delegation by its general partners. PIMCO GP has the power to
designate up to nine members of the Management Board and the PIMCO
Subpartnership, of which the PIMCO Managers are the Managing Directors, has
the power to designate up to two members. In addition, PIMCO GP, as the
controlling general partner of PIMCO Advisors, has the power to revoke the
delegation to the Management Board and exercise control of PIMCO Advisors.
As a result, Pacific Life and/or the PIMCO Managers may be deemed to control
PIMCO Advisors. Pacific Life and the PIMCO Managers disclaim such control.
Because of direct or indirect power to appoint 25% of the members of the
Equity Board, (i) Pacific Life and (ii) the PIMCO Managers and/or the PIMCO
Subpartnership may each be deemed, under applicable provisions of the
Investment Company Act, to control PIMCO Advisors. Pacific Life, the PIMCO
Subpartnership and the PIMCO Managers disclaim such control. The Additional
Statement contains more information about the Advisory Agreement, including a
more complete description of the management fee and expense arrangements,
exculpation provisions and portfolio transactions for the Fund.
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DETERMINATION OF NET ASSET VALUE
The net asset value per share is calculated separately for each
Portfolio. The net asset value of each Portfolio is determined at the close
of the regular trading session ("Close") of the NYSE (currently 4:00 p.m.
Eastern Time) each day the NYSE is open and on each other day on which there
is a sufficient degree of trading in any Portfolio's securities affecting
materially the value of such securities (if the Fund receives a request to
redeem its shares that day), by dividing the value of the Portfolio's net
assets by the number of shares outstanding. The Fund's Board of Trustees has
established procedures to value the Portfolios' securities to determine net
asset value; in general, except for the Money Market Portfolio, those
valuations are based on market value, with special provisions for (i)
securities (including restricted securities) not having readily-available
market quotations and (ii) short-term debt securities. Securities listed on a
national securities exchange or designated as national market system
securities are valued at the last sale price or, if there has been no sale
that day or on the previous day on which the exchange was open (if a week has
not elapsed between such days), at the last bid price. Debt and equity
securities actively traded in the over-the-counter market but not designated
as national market system securities are valued at the most recent bid price.
Valuations may be provided by a pricing service or from independent
securities dealers. Short-term investments with remaining maturities of less
than 60 days are valued at amortized cost so long as the Fund's Board of
Trustees determines in good faith that such method reflects fair value.
Other securities are valued by methods that the Fund's Board of Trustees
believes accurately reflect fair value.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the Close of the NYSE. The values of such
securities used in computing the net asset value of a Portfolio's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the Close of the NYSE. If events materially
affecting the value of such securities and exchange rates occur between the
time of such determination and/or the Close of the NYSE, then these
securities will be valued at their fair value as determined in good faith
under procedures established by and under the supervision of the Fund's
Board. Further details are in the Additional Statement. The Money Market
Portfolio uses the amortized cost method of valuation as described in
"Additional Information on Investment Objectives and Policies - Securities in
which the Money Market Portfolio Invests" in this Prospectus and
"Determination of Net Asset Value" in the Additional Statement and generally
will have a constant net asset value of $1.00 per share except under
extraordinary circumstances.
PURCHASE OF SHARES
Investments in the Fund may be made only by Variable Accounts and
Qualified Plans. Persons desiring to purchase Contracts funded by any
Portfolio or Portfolios of the Fund should read this Prospectus in
conjunction with the Prospectus of the Variable Accounts.
Shares of each Portfolio of the Fund are offered to the Variable
Accounts and Qualified Plans without sales charge at the respective net asset
values of the Portfolios next determined after receipt by the Fund of the
purchase payment in the manner set forth above under "Determination of Net
Asset Value." Certificates representing shares of the Fund will not be
physically issued. OCC Distributors acts without remuneration from the Fund
as the exclusive Distributor of the Fund's shares. The principal executive
office of the Distributor is located at Two World Financial Center, New York,
New York l0080.
REDEMPTION OF SHARES
Shares of any Portfolio of the Fund can be redeemed by the Variable
Accounts and Qualified Plans at any time for cash, at the net asset value
next determined after receipt of the redemption request in proper form. The
market value of the securities in each of the Portfolios is subject to daily
fluctuation and the net asset value of each Portfolio's shares, other than
shares of the Money Market Portfolio, are expected to fluctuate accordingly.
The redemption value of the Fund's shares may be either more or less than the
original cost to the Variable Accounts. Payment for redeemed shares is
ordinarily made within seven days after receipt by the Fund's transfer agent
of
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redemption instructions in proper form. The redemption privilege may be
suspended and payment postponed during any period when: (l) the NYSE is
closed other than for customary weekend or holiday closings or trading
thereon is restricted as determined by the SEC; (2) an emergency, as defined
by the SEC exists making trading of portfolio securities or valuation of net
assets not reasonably practicable; (3) the SEC has by order permitted such
suspension.
STATE LAW RESTRICTIONS
The investments of the Variable Accounts are subject to the provisions
of the insurance laws of the States of domicile of the life insurance
companies offering the Contracts. The Fund and its Portfolios will
voluntarily comply with the statutory investment restrictions applicable to
the investments of life insurance company separate accounts, of the States of
domicile of the life insurance companies offering the Contracts, even though
these state law investment restrictions do not apply to the Fund and its
Portfolios. For a description of the state law restrictions applicable to
the separate accounts of the life insurance companies offering the Contracts,
see the Prospectus for the Variable Accounts.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio intends to distribute substantially all of its net
investment income and any net realized capital gains. Dividends from net
investment income and any distributions of realized capital gains will be
paid in additional shares of the Portfolio paying the dividend or making the
distribution and credited to the shareholder's account unless the shareholder
elects to receive such dividends or distributions in cash.
MONEY MARKET PORTFOLIO. Dividends from net income on the Money Market
Portfolio will be declared on each day the NYSE is open for business to
shareholders of record as of the close of business the preceding business
day. Net income, for dividend purposes, includes accrued interest and
accretion of any discount, less the amortization of market premium and the
estimated expenses of the Money Market Portfolio. The amount of dividend may
fluctuate from day to day and may be omitted on some days. Daily dividends
accrued since the prior dividend payment will be paid monthly. Any net
realized long-term capital gains will be declared and paid at least once per
calendar year; net short-term gains may be paid more frequently, with the
distribution of dividends from net investment income.
U.S. GOVERNMENT INCOME PORTFOLIO. Dividends from net investment income
on the U.S. Government Income Portfolio will be declared on each day the
NYSE is open for business to shareholders of record as of the close of
business the preceding business day. The Portfolio will pay monthly
dividends from net investment income. Distributions of realized net
short-term capital gains, if any, and realized long-term capital gains will
be declared and paid at least once per calendar year.
EQUITY, MID CAP, SMALL CAP, GLOBAL EQUITY AND MANAGED PORTFOLIOS.
Dividends from net investment income, if any, on the Small Cap, Mid Cap,
Equity, Global Equity and Managed Portfolios will be declared and paid at
least annually, and any net realized capital gains, if any, will be declared
and paid at least once per calendar year.
TAXES. Because the Fund intends to distribute all of the net investment
income and capital gains of each Portfolio and otherwise qualify each
Portfolio as a regulated investment company under Subchapter M of the
Internal Revenue Code, it is not expected that any Portfolio of the Fund will
be required to pay any federal income tax on such income and capital gains.
Since the Variable Accounts and the Qualified Plans are the sole shareholders
of the Fund, no discussion is presented herein as to the federal income tax
consequences at the shareholder level. For information concerning the
federal income tax consequences to contractowners, see the Prospectus for
the Variable Accounts.
25
<PAGE>
CALCULATION OF PERFORMANCE
From time to time the performance of one or more of the Portfolios may
be advertised. The performance data contained in these advertisements is
based upon historical earnings and is not indicative of future performance.
The data for each Portfolio reflects the results of that Portfolio of the
Fund and recurring charges and deductions borne by or imposed on the
Portfolio. As the performance for any Portfolio does not include charges and
deductions under the Contracts, comparisons with other portfolios used in
connection with different variable accounts may not be useful. Set forth
below for each Portfolio is the manner in which the data contained in such
advertisements will be calculated as well as performance information for the
Portfolios as indicated below. This performance information does not include
charges and deductions which are imposed under the Contracts and described in
the Prospectus for the Variable Accounts.
MONEY MARKET PORTFOLIO. The performance data for this Portfolio will
reflect the "yield" and "effective yield". The "yield" of the Portfolio
refers to the income generated by an investment in the Portfolio over the
seven day period stated in the advertisement. This income is "annualized",
that is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly,
but, when annualized, the income earned by an investment in the Portfolio is
assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment.
<TABLE>
<CAPTION>
YIELD FOR 7-DAY PERIOD ENDED DECEMBER 31, 1997 FOR
MONEY MARKET PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD
CURRENT EFFECTIVE
<S> <C> <C>
MONEY MARKET PORTFOLIO 4.36% 4.45%
---- ----
</TABLE>
PORTFOLIOS OTHER THAN THE MONEY MARKET PORTFOLIO. The performance data for
these Portfolios will reflect the "total return" and may reflect the "yield.".
The "yield" refers to the income generated by an investment in that Portfolio
over the 30 day period stated in the advertisement and is the result of dividing
that income by the value of the Portfolio. The value of each Portfolio is the
average daily number of shares outstanding multiplied by the net asset value per
share on the last day of the period. "Total Return" for each of these
Portfolios refers to the value a Shareholder would receive on the date indicated
if a $1,000 investment had been made the indicated number of years ago. It
reflects historical investment results less charges and deductions of the Fund.
<TABLE>
<CAPTION>
YIELD FOR 30-DAY PERIOD ENDED DECEMBER 31, 1997 FOR
U.S. GOVERNMENT INCOME PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD
<S> <C>
U.S. GOVERNMENT INCOME PORTFOLIO 5.32%
----
</TABLE>
26
<PAGE>
AVERAGE ANNUAL TOTAL RETURN OF EQUITY, MID CAP, MANAGED, SMALL CAP, U.S.
GOVERNMENT INCOME AND GLOBAL EQUITY PORTFOLIOS
OF OCC ACCUMULATION TRUST(1),(2)
<TABLE>
<CAPTION>
For the one year For the five year For the period from
period ended period ended inception to
Portfolio December 31, 1997 December 31, 1997 December 31, 1997*
--------- ----------------- ------------------ --------------------
<S> <C> <C> <C>
Equity 26.63% 19.41% 17.56%
Mid-Cap N/A N/A N/A
Managed 22.29% 19.86% 20.32%
Small Cap 22.24% 14.61% 15.45%
U.S. Government Income 7.04% N/A 7.66%
Global Equity 14.02% N/A 16.91%
</TABLE>
*Inception date of the Global Equity Portfolio is March 1, 1995, the
inception date of the U.S. Government Income Portfolio is January 3, 1995 and
the inception date of the Mid Cap Portfolio is February 9, 1998. The Equity,
Managed and Small Cap Portfolios commenced operations as part of the Fund on
September 16, 1994. The Old Trust commenced operations on August 1, 1988.
(1)On September 16, 1994, an investment company then called Quest for
Value Accumulation Trust (the "Old Trust") was effectively divided into two
investment funds, the Old Trust and the Fund, at which time the Fund
commenced operations. The total net assets for each of the Equity, Small Cap
and Managed Portfolios immediately after the transaction were $86,789,755,
$139,812,573 and $682,601,380, respectively, with respect to the Old Trust
and for each of the Equity, Small Cap and Managed Portfolios, $3,764,598,
$8,129,274 and $51,345,102 respectively, with respect to the Fund.
For the period prior to September 16, 1994, the performance figures
above for each of the Equity, Small Cap and Managed Portfolios reflect the
performance of the corresponding Portfolios of the Old Trust.
(2)Reflects waivers of all or a portion of the advisory fees and
reimbursement of other expenses for certain Portfolios by the Manager.
Without such waivers and reimbursements, the average annual total return
during the periods would have been lower.
In addition, reference in advertisements may be made to various indices,
including, without limitation, the S&P 500 Stock Index, the S&P Mid Cap
Index, the Wilshire 750 Mid Cap Index, the Russell Mid Cap Index, the Russell
2000, the Lehman Brothers Corporate/Government Index, the Lehman Brothers US
Government Bond Index and the Morgan Stanley International (MSCI) All Country
World Index, and various rankings by independent evaluators such as
Morningstar and Lipper Analytical Services, Inc. in order to provide the
reader a basis for comparison.
ADDITIONAL INFORMATION
ORGANIZATION OF THE FUND. The Fund was organized as a Massachusetts
business trust on May 12, 1994 and is registered with the SEC as an open-end
diversified management investment company. When issued, shares are fully
paid and have no preemptive or conversion rights. The shares of beneficial
interest of the Fund, $0.01 par value, are divided into seven separate
series. The shares of each series are freely-transferable and equal as to
earnings, assets and voting privileges with all other shares of that series.
There are no conversion, preemptive or other subscription rights. Upon
liquidation of the Fund or any Portfolio, shareholders of a Portfolio are
entitled to share pro rata in the net assets of that Portfolio available for
distribution to shareholders after all debts and expenses have been paid.
The shares do not have cumulative voting rights.
The Fund's Board of Trustees, whose responsibilities are comparable to
those of directors of a Massachusetts corporation, is empowered to issue
additional classes of shares, which classes may either be
27
<PAGE>
identical except as to dividends or may have separate assets and liabilities;
classes having separate assets and liabilities are referred to as "series".
The creation of additional series and offering of their shares (the proceeds
of which would be invested in separate, independently managed portfolios with
distinct investment objectives, policies and restrictions) would not affect
the interests of the current shareholders in the existing Portfolios.
The assets received by the Fund on the sale of shares of each Portfolio
and all income, earnings, profits and proceeds thereof, subject only to the
rights of creditors, are allocated to each Portfolio, and constitute the
assets of such Portfolio. The assets of each Portfolio are required to be
segregated on the Fund's books of account. The Fund's Board of Trustees has
agreed to monitor the portfolio transactions and management of each of the
Portfolios and to consider and resolve any conflict that may arise.
VOTING. For matters affecting only one Portfolio, only the shareholders
of that Portfolio are entitled to vote. For matters relating to all the
Portfolios but affecting the Portfolios differently, separate votes by
Portfolio are required. Approval of an Investment Management Agreement and a
change in fundamental policies would be regarded as matters requiring
separate voting by each Portfolio. To the extent required by law, the
Variable Accounts will vote the shares of the Fund, or any Portfolio of the
Fund, held in the Variable Accounts in accordance with instructions from
Contractowners, as described under the caption "Voting Rights" in the
accompanying Prospectus for the Variable Accounts. Shares for which no
instructions are received as well as shares which the Manager or its parent,
Oppenheimer Capital, may own, will be voted in the same proportion as shares
for which instructions are received. The Fund does not intend to hold annual
meetings of shareholders. However, the Board of Trustees will call special
meetings of shareholders for action by shareholder vote as may be requested
in writing by holders of 10 percent or more of the outstanding shares of a
Portfolio or as may be required by applicable laws or the Declaration of
Trust pursuant to which the Fund has been organized.
Under Massachusetts law shareholders could, in certain circumstances, be
held personally liable as partners for Fund obligations. The Fund's
Declaration of Trust contains an express disclaimer of shareholder liability
for acts or obligations of the Fund and requires that notice of such
disclaimer be given in each instrument entered into or executed by the Fund.
The Declaration of Trust also provides for indemnification out of the Fund's
property for any shareholder held personally liable for any Fund obligation.
Thus, the risk of loss to a shareholder from being held personally liable for
obligations of the Fund is limited to the unlikely circumstance in which the
Fund itself would be unable to meet its obligations.
CUSTODIAN AND TRANSFER AGENT. The custodian of the assets of the Fund
is State Street Bank and Trust Company, P.O. Box 8505, Boston, MA
02266-8505, which also acts as transfer agent and shareholder servicing agent
for the Fund.
CONTRACTOWNERS INQUIRIES. Inquiries concerning the purchase and sale of
shares of the Fund, dividends, account statements and management and
investment policies of the Fund should be directed to the respective life
insurance companies which use the Fund as an investment vehicle for their
respective variable annuity and life insurance contracts.
YEAR 2000 ISSUES. The management services provided to the Fund by the
Manager, and the services provided by the Transfer Agent to shareholders,
depend on the smooth functioning of their computer systems. Many computer
software systems in use today cannot recognize the year 2000, but revert to
1900 or some other incorrect date, due to the manner in which dates were
encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers may be affected by remediation
costs, which may be substantial. The Manager and Transfer Agent have been
actively working on necessary changes to their own computer systems to deal
with the year 2000 and expect that their systems will be adapted before that
date, but there can be no assurance that they will be successful or that
interaction with other noncomplying computer systems will not impair their
services at that time.
28
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER AND CORPORATE BOND RATINGS
COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers
to repay promissory obligations when due. Moody's employs the following
three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers: Prime 1 - Superior Ability for
Repayment; Prime 2 - Strong Ability for Repayment; Prime 3 - Acceptable
Ability for Repayment.
S&P's commercial paper rating is a current assessment of the likelihood
of timely payment. Ratings are graded into four categories, ranging from "A"
for the highest quality obligations to "D" for the lowest. Issues assigned
the highest rating, "A", are regarded as having the greatest capacity for
timely payment. Issues in this category are delineated with the numbers "1",
"2", and "3" to indicate the relative degree of safety. The designation
"A-1" indicates that the degree of safety regarding timely payment is either
overwhelming or very strong. The "A+" designation is applied to those issues
rated "A-1" which possess overwhelming safety characteristics. Capacity for
timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated "A-1."
Fitch's commercial paper ratings represent Fitch's assessment of the
issuer's ability to meet its obligations in a timely manner. The assessment
places emphasis on the existence of liquidity. Ratings range from "F-1+"
which represents exceptionally strong credit quality to "F-4" which
represents weak credit quality.
Duff's short-term ratings apply to all obligations with maturities of
under one year, including commercial paper, the uninsured portion of
certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit and current maturities of
long-term debt. Emphasis is placed on liquidity. Ratings range for Duff 1+
for the highest quality to Duff 5 for the lowest, issuers in default. Issues
rated Duff 1+ are regarded as having the highest certainty of timely payment.
Issues rated Duff 1 are regarded as having very high certainty of timely
payment.
Thomson's BankWatch, Inc. assigns only one Issuer Rating to each
company, based upon a qualitative and quantitative analysis of the
consolidated financials of an issuer and its subsidiaries. The rating
incorporates TBW's opinion of the vulnerability of the company to adverse
developments which may impact the marketability of its securities, as well as
the issuer's ability to repay principal and interest. Ratings range from
"TBW-1" for highest quality to "TBW-3" for the lowest, companies with very
serious problems.
BOND RATINGS
A bond rated "Aaa" by Moody's is judged to be the best quality. They
carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and principal is
deemed secure. While the various protective elements may change, such
foreseeable changes are unlikely to impair the fundamentally strong position
of such issues. Bonds which are rated "Aa" are judged to be of high quality
by all standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. Margins of protection on "Aa" bonds may
not be as large as on "Aaa" securities or fluctuations of protective elements
may be of greater magnitude or there may be other elements present which make
the long-term risks appear somewhat larger than "Aaa" securities. Bonds
which are rated "A" possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future. Bonds
rated "Baa" are considered medium grade obligations whose interest payments
and principal security appear adequate for the present but may lack certain
protective elements or may be characteristically unreliable over any great
length of time. Moody's applies numerical modifiers "1", "2" and "3" in each
generic rating classification from "Aa" through "B" in its corporate bond
rating system. The modifier "1" indicates that the security ranks in the
higher end of its generic rating category; the modifier "2" indicates a mid-
29
<PAGE>
range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category. Bonds rated "Ba" are judged to have
speculative elements and bonds rated below "Ba" are speculative to a higher
degree.
Debt rated "AAA" by S&P has the highest rating assigned by it. Capacity
to pay interest and repay principal is extremely strong. Debt rated "AA" has
a strong capacity to pay interest and repay principal and differs from "AAA"
issues only in small degree. Debt rated "A" has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt
in higher rated categories. Debt rated "BBB" is regarded as having an
adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. Debt rated "BB" and below is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. Plus (+) and minus (-) signs are used with a rating symbol
to indicate the relative position within the category.
Debt rated "AAA", the highest rating by Fitch, is considered to be of
the highest credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events. Debt rated "AA" is regarded as very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong. Debt rated "A" is of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but
may be more vulnerable to adverse changes in economic conditions and
circumstances than debt with higher ratings. Debt rated "BBB" is of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is adequate, however a change in economic conditions may adversely
affect timely payment. Plus (+) and minus (-) signs are used with a rating
symbol (except "AAA") to indicate the relative position within the category.
Debt rated "AAA", the highest rating by Duff is considered to be of the
highest credit quality. The risk factors are negligible being only slightly
more than for risk-free U.S. Treasury debt. Debt rated "AA" is regarded as
high credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions. Debt rated
"A" is considered to have average but adequate protection factors. Bonds
rated "BBB" are considered to have below average protection factors but still
sufficient for prudent investment. Bonds rated "BB" and below are below
investment grade and possess fluctuating protection factors and risk. Plus
(+) and minus (-) signs are used with a rating symbol to indicate the
relative position within the category.
30
<PAGE>
Statement of Additional Information
OCC ACCUMULATION TRUST
One World Financial Center
New York, NY 10281
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. Investors should understand that this Additional Statement
should be read in conjunction with the Prospectus dated May 1, 1998, (the
"Prospectus") of OCC Accumulation Trust (the "Fund"). Contractowners can
obtain copies of the Fund Prospectus by written request to the life insurance
company who issued the Contract at the address delineated in the Variable
Account Prospectus or by calling the life insurance company who issued the
Contract at the telephone number listed in the Variable Account Prospectus.
THE DATE OF THIS ADDITIONAL STATEMENT IS MAY 1, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment of Assets.............................. 3
Investment Restrictions........................... 15
Trustees and Officers............................. 17
Control Persons................................... 21
Investment Management and Other Services.......... 23
Determination of Net Asset Value.................. 27
Dividends, Distribution and Taxes................. 29
Portfolio Yield and Total Return Information...... 30
Additional Information............................ 33
Financial Statements.............................. A-1
</TABLE>
2
<PAGE>
INVESTMENT OF ASSETS
The investment objective and policies of each Portfolio of the Fund are
described in the Prospectus. A further description of the investments and
investment methods applicable to certain Portfolios appears below.
OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES OR
INSTRUMENTALITIES. Some obligations issued or guaranteed by U.S. government
agencies or instrumentalities, such as securities issued by the Federal Home
Loan Bank, are backed by the right of the agency or instrumentality to borrow
from the Treasury. Others, such as securities issued by the Federal National
Mortgage Association ("Fannie Mae"), are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not backed by
the full faith and credit of the United States, the owner of the securities
must look principally to the agency issuing the obligation for repayment and
may not be able to assert a claim against the United States in the event that
the agency or instrumentality does not meet its commitment.
COLLATERALIZED MORTGAGE OBLIGATIONS. In addition to securities issued
by the Government National Mortgage Association ("Ginnie Mae"), Fannie Mae
and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), another type
of mortgage-backed security is the "collateralized mortgage obligation",
which is secured by groups of individual mortgages but is similar to a
conventional bond where the investor looks only to the issuer for payment of
principal and interest. Although the obligations are recourse obligations to
the issuer, the issuer typically has no significant assets, other than assets
pledged as collateral for the obligations, and the market value of the
collateral, which is sensitive to interest rate movements, may affect the
market value of the obligations. A public market for a particular
collateralized mortgage obligation may or may not develop and thus, there can
be no guarantee of liquidity of an investment in such obligations. The Money
Market Portfolio will not invest more than 5% of its total assets in
collateralized mortgage obligations. Investments will only be made in
collateralized mortgage obligations which are of high quality, as determined
by the Board of Trustees.
INFORMATION ON TIME DEPOSITS AND VARIABLE RATE NOTES. The Portfolios may
invest in fixed time deposits, whether or not subject to withdrawal penalties;
however, investment in such deposits which are subject to withdrawal penalties,
other than overnight deposits, are subject to the 15% limit on illiquid
investments set forth in the Prospectus (10% limit on illiquid investments for
Money Market Portfolio).
The commercial paper obligations which the Portfolios may buy are unsecured
and may include variable rate notes. The nature and terms of a variable rate
note (i.e., a "Master Note") permit a Portfolio to invest fluctuating amounts at
varying rates of interest pursuant to a direct arrangement between the Portfolio
as lender, and the issuer, as borrower. It permits daily changes in the amounts
borrowed. The Portfolio has the right at any time to increase, up to the full
amount stated in the note agreement, or to decrease the amount outstanding under
the note. The issuer may prepay at any time and without penalty any part of or
the full amount of the note. The note may or may not be backed by one or more
bank letters of credit. Because these notes are direct lending arrangements
between the Portfolio and the issuer, it is not generally contemplated that they
will be traded; moreover, there is currently no secondary market for them. The
Portfolios have no limitations on the type of issuer from whom these notes will
be purchased; however, in connection with such purchase and on an ongoing basis,
OpCap Advisors (the "Manager") will consider the earning power, cash flow and
other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such notes
made demand simultaneously. The Portfolios will not invest more than 5% of
their total assets in variable rate notes. Variable rate notes are subject to
the Portfolios' investment restrictions on illiquid securities unless such notes
can be put back to the issuer on demand within seven days.
INSURED BANK OBLIGATIONS. The Federal Deposit Insurance Corporation
("FDIC") insures the deposits
3
<PAGE>
of federally insured banks and savings and loan associations (collectively
referred to as "banks") up to $100,000. The Portfolio may, within the limits
set forth in the Prospectus, purchase bank obligations which are fully
insured as to principal by the FDIC. Currently, to remain fully insured as
to principal, these investments must be limited to $100,000 per bank; if the
principal amount and accrued interest together exceed $100,000, the excess
principal amount and accrued interest will not be insured. Insured bank
obligations may have limited marketability. Unless the Board of Trustees
determines that a readily available market exists for such obligations, a
Portfolio will treat such obligations as subject to the 15% limit for
illiquid investments set forth in the Prospectus for each Portfolio (10%
limit for illiquid investments for Money Market Portfolio) unless such
obligations are payable at principal amount plus accrued interest on demand
or within seven days after demand.
LOWER RATED BONDS. Each Portfolio except for the Money Market Portfolio
may invest up to 5% of its assets in bonds rated below Baa3 by Moody's
Investors Service, Inc. ("Moody's") or BBB- by Standard & Poor's Corporation
("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps, Inc.
("Duff"). These securities are commonly known as "junk bonds." Securities
rated less than Baa by Moody's or BBB- by S&P are classified as
non-investment grade securities and are considered speculative by those
rating agencies. It is the Fund's policy not to rely exclusively on ratings
issued by credit rating agencies but to supplement such ratings with the
Manager's own independent and ongoing review of credit quality. Junk bonds
may be issued as a consequence of corporate restructurings, such as leveraged
buyouts, mergers, acquisitions, debt recapitalizations, or similar events or
by smaller or highly leveraged companies. Although the growth of the high
yield securities market in the 1980s had paralleled a long economic
expansion, recently many issuers have been affected by adverse economic and
market conditions. It should be recognized that an economic downturn or
increase in interest rates is likely to have a negative effect on (i) the
high yield bond market, (ii) the value of high yield securities and (iii) the
ability of the securities' issuers to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. The market for junk bonds may be less liquid than the
market for investment grade bonds. In periods of reduced market liquidity,
junk bond prices may become more volatile and may experience sudden and
substantial price declines. Also, there may be significant disparities in
the prices quoted for junk bonds by various dealers. Under such conditions,
a Portfolio may find it difficult to value its junk bonds accurately. Under
such conditions, a Portfolio may have to use subjective rather than objective
criteria to value its junk bond investments accurately and rely more heavily
on the judgment of the Fund's Board of Trustees. Prices for junk bonds also
may be affected by legislative and regulatory developments. For example, new
federal rules require that savings and loans gradually reduce their holdings
of high-yield securities. Also, from time to time, Congress has considered
legislation to restrict or eliminate the corporate tax deduction for interest
payments or to regulate corporate restructurings such as takeovers, mergers
or leveraged buyouts. Such legislation, if enacted, may depress the prices
of outstanding junk bonds.
DOLLAR ROLLS. The U.S. Government Income Portfolio may enter into dollar
rolls in which the Portfolio sells securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same type and
coupon) securities on a specified future date. During the roll period, the
Portfolio forgoes principal and interest paid on the securities. The Portfolio
is compensated by the difference between the current sale price and the lower
forward price for the future purchase (often referred to as the "drop") as well
as interest earned on the cash proceeds of the initial sale.
The Portfolio will establish a segregated account with the Fund's custodian
bank in which the Portfolio will maintain cash, U.S. Government securities or
other liquid high grade debt obligations equal in value to its obligations in
respect of dollar rolls. Dollar rolls involve the risk that the market value of
the securities the Portfolio is obligated to repurchase may decline below the
repurchase price. In the event the buyer of securities under a dollar roll
files for bankruptcy or becomes insolvent, the Portfolio's use of the proceeds
of the transaction
4
<PAGE>
may be restricted pending a determination by the other party, or its trustee
or receiver, whether to enforce the Portfolio's obligation to repurchase the
securities.
Dollar rolls are considered borrowings by the Portfolio. Under the
requirements of the Investment Company Act of 1940, as amended (the "1940 Act"),
the Portfolio is required to maintain an asset coverage (including the proceeds
of borrowings) of at least 300% of all borrowings.
HEDGING. As stated in the Prospectus, the Global Equity, Mid Cap, Small
Cap and Equity Portfolios may engage in options and futures. Information about
the options and futures transactions these Portfolios may enter into is set
forth below.
FINANCIAL FUTURES. No price is paid or received upon the purchase of a
financial future. Upon entering into a futures transaction, a portfolio will be
required to deposit an initial margin payment equal to a specified percentage of
the contract value. Initial margin payments will be deposited with the Fund's
custodian bank in an account registered in the futures commission merchant's
name; however the futures commission merchant can gain access to that account
only under specified conditions. As the future is marked to market to reflect
changes in its market value, subsequent payments, called variation margin, will
be made to or from the futures commission merchant on a daily basis. Prior to
expiration of the future, if a portfolio elects to close out its position by
taking an opposite position, a final determination of variation margin is made,
additional cash is required to be paid by or released to the portfolio, and any
loss or gain is realized for tax purposes. Although financial futures by their
terms call for the actual delivery or acquisition of the specified security, in
most cases the obligation is fulfilled by closing out the position. All futures
transactions are effected through a clearing house associated with the exchange
on which the contracts are traded. The Global Equity Portfolio may purchase and
sell futures contracts that are currently traded, or may in the future be
traded, on U.S. and foreign commodity exchanges on common stocks, such
underlying fixed-income securities as U.S. Treasury bonds, notes, and bills
and/or any foreign government fixed-income security ("interest rate" futures),
on various currencies ("currency" futures) and on such indices of U.S. or
foreign equity and fixed-income securities as may exist or come into being, such
as the Standard & Poor's ("S&P") 500 Index or the Financial Times Equity Index
("index" futures). At present, no Portfolio intends to enter into financial
futures and options on such futures if after any such purchase, the sum of
initial margin deposits on futures and premiums paid on futures options would
exceed 5% of the Portfolio's total assets. This limitation is not a fundamental
policy.
INFORMATION ON PUTS AND CALLS. The Mid Cap, Small Cap and Equity
Portfolios may write calls on individual securities. The Mid Cap and Global
Equity Portfolios are authorized to write covered put and call options and
purchase put and call options on the securities in which they may invest. When
a portfolio writes a call, it receives a premium and agrees to sell the callable
securities to a purchaser of a corresponding call during the call period
(usually not more than 9 months) at a fixed exercise price (which may differ
from the market price of the underlying securities) regardless of market price
changes during the call period. If the call is exercised, the portfolio forgoes
any possible profit from an increase in market price over the exercise price. A
portfolio may, in the case of listed options, purchase calls in "closing
purchase transactions" to terminate a call obligation. A profit or loss will be
realized, depending upon whether the net of the amount of option transaction
costs and the premium received on the call written is more or less than the
price of the call subsequently purchased. A profit may be realized if the call
lapses unexercised, because the portfolio retains the underlying security and
the premium received. If, due to a lack of a market, a portfolio could not
effect a closing purchase transaction, it would have to hold the callable
securities until the call lapsed or was exercised. The Fund's Custodian, or a
securities depository acting for the Custodian, will act as the portfolio's
escrow agent, through the facilities of the Options Clearing Corporation ("OCC")
in connection with listed calls, as to the securities on which the portfolio has
written calls, or as to other acceptable escrow securities, so that no margin
will be required for such
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transactions. OCC will release the securities on the expiration of the
calls or upon the portfolio's entering into a closing purchase transaction.
When a portfolio purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment
during the call period (or on a certain date for OTC options) at a fixed
exercise price. A portfolio benefits only if the call is sold at a profit or
if, during the call period, the market price of the underlying investment is
above the call price plus the transaction costs and the premium paid for the
call and the call is exercised. If a call is not exercised or sold (whether
or not at a profit), it will become worthless at its expiration date and the
portfolio will lose its premium payment and the right to purchase the
underlying investment.
With OTC options, such variables as expiration date, exercise price and
premium will be agreed upon between the portfolio and the transacting dealer,
without the intermediation of a third party such as the OCC. If a
transacting dealer fails to make delivery on the securities underlying an
option it has written, in accordance with the terms of that option as
written, a portfolio could lose the premium paid for the option as well as
any anticipated benefit of the transaction. The Portfolios will engage in
OTC option transactions only with primary U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York. In the event that any
OTC option transaction is not subject to a forward price at which the
portfolio has the absolute right to repurchase the OTC option which it has
sold, the value of the OTC option purchased and of the portfolio assets used
to "cover" the OTC option will be considered "illiquid securities" and will
be subject to the 15% limit on illiquid securities. The "formula" on which
the forward price will be based may vary among contracts with different
primary dealers, but it will be based on a multiple of the premium received
by the portfolio for writing the option plus the amount, if any, of the
option's intrinsic value, i.e., current market value of the underlying
securities minus the option's strike price.
A put option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period (or on a certain date for OTC options). The investment
characteristics of writing a put covered by segregated liquid assets equal to
the exercise price of the put are similar to those of writing a covered call.
The premium received on a put written by a portfolio represents a profit, as
long as the price of the underlying investment remains above the exercise
price. However, a portfolio has also assumed the obligation during the option
period to buy the underlying investment from the buyer of the put at the
exercise price, even though the value of the investment may fall below the
exercise price. If the put expires unexercised, the portfolio (as writer)
realizes a gain in the amount of the premium. If the put is exercised, the
portfolio must fulfill its obligation to purchase the underlying investment
at the exercise price, which will usually exceed the market value of the
investment at that time. In that case, the portfolio may incur a loss upon
disposition, equal to the sum of the sale price of the underlying investment
and the premium received minus the sum of the exercise price and any
transaction costs incurred.
When writing put options, to secure its obligation to pay for the
underlying security, the Fund, on behalf of a portfolio, will maintain in a
segregated account at its Custodian liquid assets with a value equal to at
least the exercise price of the option. As a result, the portfolio forgoes
the opportunity of trading the segregated assets or writing calls against
those assets. As long as the portfolio's obligation as a put writer
continues, the portfolio may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring the portfolio to
purchase the underlying security at the exercise price. A portfolio has no
control over when it may be required to purchase the underlying security,
since it may be assigned an exercise notice at any time prior to the
termination of its obligation as the writer of the put. This obligation
terminates upon the earlier of the expiration of the put, or the consummation
by the portfolio of a closing purchase transaction by purchasing a put of the
same series as that previously sold. Once a portfolio has been assigned an
exercise notice, it is thereafter
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not allowed to effect a closing purchase transaction.
A portfolio may effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent an
underlying security from being put to it. Furthermore, effecting such a
closing purchase transaction will permit the portfolio to write another put
option to the extent that the exercise price thereof is secured by the
deposited assets, or to utilize the proceeds from the sale of such assets for
other investments by the portfolio. The portfolio will realize a profit or
loss from a closing purchase transaction if the cost of the transaction is
less or more than the premium received from writing the option.
When a portfolio purchases a put, it pays a premium and has the right to
sell the underlying investment at a fixed exercise price to a seller of a
corresponding put on the same investment during the put period if it is a
listed option (or on a certain date if it is an OTC option). Buying a put on
securities or futures held by it permits a portfolio to attempt to protect
itself during the put period against a decline in the value of the underlying
investment below the exercise price. In the event of a decline in the
market, the portfolio could exercise, or sell the put option at a profit that
would offset some or all of its loss on the portfolio securities. If the
market price of the underlying investment is above the exercise price and as
a result, the put is not exercised, the put will become worthless at its
expiration date and the purchasing portfolio will lose the premium paid and
the right to sell the underlying securities; the put may, however, be sold
prior to expiration (whether or not at a profit). Purchasing a put on
futures or securities not held by it permits a portfolio to protect its
securities holdings against a decline in the market to the extent that the
prices of the future or securities underlying the put move in a similar
pattern to the prices of a portfolio's securities.
An option position may be closed out only on a market which provides
secondary trading for options of the same series, and there is no assurance
that a liquid secondary market will exist for any particular option. A
portfolio's option activities may affect its turnover rate and brokerage
commissions. The exercise of calls written by a portfolio may cause the
portfolio to sell its securities to cover the call, thus increasing its
turnover rate in a manner beyond the portfolio's control. The exercise of
puts on securities or futures will increase portfolio turnover. Although
such exercise is within the portfolio's control, holding a put might cause a
portfolio to sell the underlying investment for reasons which would not exist
in the absence of the put. A portfolio will pay a brokerage commission every
time it purchases or sells a put or a call or purchases or sells a related
investment in connection with the exercise of a put or a call.
OPTIONS ON FUTURES. The Global Equity, Mid Cap, Small Cap and Equity
Portfolios may purchase and write call and put options on futures contracts
which are traded on an exchange and enter into closing transactions with
respect to such options to terminate an existing position. An option on a
futures contract gives the purchaser the right (in return for the premium
paid) to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of
the option, the delivery of the futures position by the writer of the option
to the holder of the option is accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount
by which the market price of the futures contract at the time of exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
The Portfolios may purchase and write options on futures contracts for
hedging purposes. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the
price of the futures contract upon which it is based or the price of the
underlying securities, it may or may not be less risky than ownership of the
futures contract or underlying securities. As with the purchase of futures
contracts, when a Portfolio is not fully
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invested it may purchase a call option on a futures contract to hedge against
an anticipated increase in securities prices.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Portfolio will retain the full amount
of the option premium which provides a partial hedge against any decline that
may have occurred in the Portfolio's securities holdings. The writing of a
put option on a futures contract constitutes a partial hedge against
increasing prices of the security which is deliverable upon exercise of the
futures contract. If the futures price at expiration of the option is higher
than the exercise price, the Portfolio will retain the full amount of the
option premium which provides a partial hedge against any increase in the
price of securities which the Portfolio intends to purchase. If a put or
call option the Portfolio has written is exercised, the Portfolio will incur
a loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures positions, the
Portfolio's losses from existing options may to some extent be reduced or
increased by changes in the value of its securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on securities. For
example, a Portfolio may purchase a put option on a futures contract to hedge
the Portfolio's holdings against the risk of a decline in securities prices.
The amount of risk a Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of
an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased.
STOCK INDEX FUTURES AND RELATED OPTIONS. Unlike when the Portfolio
purchases or sells a security, no price is paid or received by the Portfolio
upon the purchase or sale of a futures contract. Instead, the Portfolio will
be required to deposit with its broker an amount of cash or U.S. Treasury
bills equal to approximately 5% of the contract amount. This is known as
initial margin. Such initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Portfolio upon
termination of the futures contract assuming all contractual obligations have
been satisfied. In addition, because under current futures industry practice
daily variations in gains and losses on open contracts are required to be
reflected in cash in the form of variation margin payments, the Portfolio may
be required to make additional payments during the term of the contract to
its broker. Such payments would be required where during the term of a stock
index futures contract purchased by the Portfolio, the price of the
underlying stock index declined, thereby making the Portfolio's position less
valuable. In all instances involving the purchase of stock index futures
contracts by the Portfolio resulting in a net long position, an amount of
cash and cash equivalents equal to the market value of the futures contracts
will be deposited in a segregated account with the Fund's custodian, for the
benefit of the Portfolio, to collateralize the position and thereby insure
that the use of such futures is unleveraged. At any time prior to the
expiration of the futures contract, the Portfolio may elect to close the
position by taking an opposite position which will operate to terminate the
Portfolio's position in the futures contract.
There are several risks in connection with the use of stock index
futures in the Portfolio as a hedging device. One risk arises because of the
imperfect correlation between the price of the stock index future and the
price of the securities which are the subject of the hedge. This risk of
imperfect correlation increases as the composition of the Portfolio's
holdings diverges from the securities included in the applicable stock index.
The price of the stock index future may move more than or less than the
price of the securities being hedged. If the price of the stock index future
moves less than the price of the securities which are the subject of the
hedge, the
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hedge will not be fully effective, but, if the price of the securities being
hedged has moved in an unfavorable direction, the Portfolio would be in a
better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction this advantage
will be partially offset by the future. If the price of the futures moves
more than the price of the stock the Portfolio will experience a loss or a
gain on the future which will not be completely offset by movement in the
price of the securities which are the subject of the hedge. To compensate
for the imperfect correlation of movements in the price of securities being
hedged and movements in the price of the stock index futures, the Portfolio
may buy or sell stock index futures in a greater dollar amount than the
dollar amount of the securities being hedged if the historical volatility of
the prices of such securities has been greater than the historical volatility
of the index. Conversely, the Portfolio may buy or sell fewer stock index
futures contracts if the historical volatility of the price of the securities
being hedged is less than the historical volatility of the stock index. It
is possible that where the Portfolio has sold futures to hedge its portfolio
against a decline in the market, the market may advance and the Portfolio's
securities may decline. If this occurred, the Portfolio would lose money on
the futures and also experience a decline in the value of its securities.
While this should occur, if at all, for a very brief period or to a very
small degree, the Manager believes that over time the value of a diversified
portfolio will tend to move in the same direction as the market indices upon
which the futures are based. It is also possible that if the Portfolio
hedges against the possibility of a decline in the market adversely affecting
stocks it holds and stock prices increase instead, the Portfolio will lose
part or all of the benefit of the increased value of its stock which it had
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Portfolio has insufficient cash, it may
have to sell securities to meet daily variation margin requirements. Such
sales of securities may be, but will not necessarily be, at increased prices
which reflect the rising market. The Portfolio may also have to sell
securities at a time when it may be disadvantageous to do so.
Where futures are purchased to hedge against a possible increase in the
price of stocks before the Portfolio is able to invest its cash (or cash
equivalents) in stock (or options) in an orderly fashion, it is possible the
market may decline instead. If the Portfolio then concluded to not invest in
stock or options at the time because of concern as to possible further market
decline or for other reasons, the Portfolio will realize a loss on the
futures contract that is not offset by a reduction in the price of securities
purchased.
In addition to the possibility that there may be an imperfect
correlation or no correlation at all between movements in the stock index
future and the portion of the portfolio being hedged, the price of stock
index futures may not correlate perfectly with movements in the stock index
due to certain market distortions. All participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the index and futures markets. Moreover, the deposit
requirements in the futures market are less onerous than margin requirements
in the securities market and may therefore cause increased participation by
speculators in the market. Such increased participation may also cause
temporary price distortions. Due to the possibility of price distortion in
the futures market and because of the imperfect correlation between movements
in the stock index and movements in the price of stock index futures, the
value of stock index futures contracts as a hedging device may be reduced.
Currently, stock index futures contracts can be purchased or sold with
respect to several different stock indices, each based on a different measure
of market performance. Positions in stock index futures may be closed out
only on an exchange or board of trade which provides a secondary market for
such futures. Although the Portfolios intend to purchase or sell futures
only on exchanges or boards of trade where there appears to be an active
secondary market, as with stock options, there is no assurance that a liquid
secondary market or an exchange or board of trade will exist for any
particular contract or at any particular time. In such event it may not be
possible to close a futures position and in the event of adverse price
movements, the Portfolios would
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continue to be required to make daily cash payments of variation margin.
However, in the event futures contracts have been used to hedge a portfolio's
securities, such securities will not be sold until the futures contract can
be terminated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price
of securities will, in fact, correlate with the price movements in the
futures contract and thus provide an offset to losses on a futures contract.
In addition, if the Portfolios have insufficient cash they may at times
have to sell securities to meet variation margin requirements. Such sales may
have to be effected at a time when it is disadvantageous to do so.
REGULATORY ASPECTS OF HEDGING INSTRUMENTS. Transactions in options by a
portfolio are subject to limitations established (and changed from time to
time) by each of the exchanges governing the maximum number of options which
may be written or held by a single investor or group of investors acting in
concert, regardless of whether the options were written or purchased on the
same or different exchanges or are held in one or more accounts or through
one or more different exchanges or through one or more brokers. Thus, the
number of options which a portfolio may write or hold may be affected by
options written or held by other investment companies and discretionary
accounts of the Manager, including other investment companies having the same
or an affiliated investment adviser. An exchange may order the liquidation
of positions found to be in violation of those limits and may impose certain
other sanctions.
Due to requirements under the 1940 Act, when a portfolio sells a future,
the Fund, on behalf of the portfolio, will maintain in a segregated account
or accounts with its custodian bank, cash or readily marketable short-term
(maturing in one year or less) debt instruments in an amount equal to the
market value of such future, less the margin deposit applicable to it.
The Fund and each Portfolio must operate within certain restrictions as
to its positions in futures and options thereon under a rule ("CFTC Rule")
adopted by the Commodity Futures Trading Commission ("CFTC") under the
Commodity Exchange Act (the "CEA"), which excludes the Fund and each
Portfolio from registration with the CFTC as a "commodity pool operator" (as
defined under the CEA). Under those restrictions, a portfolio may not enter
into any financial futures or options contract unless such transactions are
for bona fide hedging purposes, or for other purposes only if the aggregate
initial margins and premiums required to establish such non-hedging positions
would not exceed 5% of the liquidation value of its assets. Each Portfolio
may use futures and options thereon for bona fide hedging or for other
purposes within the meaning and intent of the applicable provisions of the
CEA.
TAX ASPECTS OF HEDGING INSTRUMENTS. Each Portfolio in the Fund intends
to qualify as a "regulated investment company" under the Internal Revenue
Code. One of the tests for such qualification is that at least 90% of its
gross income must be derived from dividends, interest and gains from the sale
or other disposition of securities. In connection with the 90% test,
amendments to the Internal Revenue Code specify that income from options,
futures and other gains derived from investments in securities is qualifying
income under the 90% test.
Regulated futures contracts, options on broad-based stock indices,
options on stock index futures, certain other futures contracts and options
thereon (collectively, "Section 1256 contracts") held by a portfolio at the
end of each taxable year may be required to be "marked to market" for federal
income tax purposes (that is, treated as having been sold at that time at
market value). Any unrealized gain or loss taxed pursuant to this rule will
be added to realized gains or losses recognized on Section 1256 contracts
sold by a portfolio during the year, and the resulting gain or loss will be
deemed to consist of 60% long-term capital gain or loss and 40% short-term
capital gain or loss. A portfolio may elect to exclude certain transactions
from the mark-to-market
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rule although doing so may have the effect of increasing the relative
proportion of short-term capital gain (taxable as ordinary income) and/or
increasing the amount of dividends that must be distributed annually to meet
income distribution requirements, currently at 98%, to avoid payment of
federal excise tax.
It should also be noted that under certain circumstances, the
acquisition of positions in hedging instruments may result in the elimination
or suspension of the holding period for tax purposes of other assets held by
a portfolio with the result that the relative proportion of short-term
capital gains (taxable as ordinary income) could increase.
POSSIBLE RISK FACTORS IN HEDGING. In addition to the risks with respect
to futures and options discussed in the Prospectus and above, there is a risk
in selling futures that the prices of futures will correlate imperfectly with
the behavior of the cash (i.e., market value) prices of a portfolio's
securities. The ordinary spreads between prices in the cash and futures
markets are subject to distortions due to differences in the natures of those
markets. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship between
the cash and futures markets. Second, the liquidity of the futures market
depends on participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements
in the securities market. Therefore, increased participation by speculators
in the futures market may cause temporary price distortions. Moreover, if
the Manager's investment judgment about the general direction of securities
prices is incorrect, a Portfolio's overall performance would be poorer than
if it had not entered into a Hedging Transaction.
Also, when a portfolio uses appropriate Hedging Instruments to establish
a position in the market as a temporary substitute for the purchase of
individual securities (long hedging) by buying futures and/or calls on such
futures or on a particular security, it is possible that the market may
decline. If the portfolio then concludes not to invest in such securities at
that time because of concerns as to possible further market decline or for
other reasons, it will realize a loss on the Hedging Instruments that is not
offset by a reduction in the price of the securities purchased.
INVESTMENT IN FOREIGN SECURITIES. As described in the Prospectus, the
Global Equity Portfolio will, and the Equity, Mid Cap, Small Cap and Managed
Portfolios may purchase foreign securities provided that they are listed on a
domestic or foreign securities exchange or represented by American depository
receipts listed on a domestic securities exchange or traded in a domestic or
foreign over-the-counter market. There is no limit on the amount of such
foreign securities that the Portfolios might acquire. These Portfolios will
hold foreign currency in connection with the purchase or sale of securities
on a foreign securities exchange. To the extent that foreign currency is so
held, there may be a risk due to foreign currency exchange rate fluctuations.
Such foreign currency and foreign securities will be held by the Fund's
custodian bank, or by a foreign branch of a U.S. bank, acting as
subcustodian, on behalf of the Portfolio. The custodian bank will hold such
foreign securities pursuant to such arrangements as are permitted by
applicable foreign and domestic law and custom.
Investments in foreign companies involve certain considerations which
are not typically associated with investing in domestic companies. An
investment may be affected by changes in currency rates and in exchange
control regulations (e.g. currency blockage). The Portfolios may bear a
transaction charge in connection with the exchange of currency. There may be
less publicly available information about a foreign company than about a
domestic company. Foreign companies are generally not subject to uniform
accounting, auditing and financial
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reporting standards comparable to those applicable to domestic companies.
Most foreign stock markets have substantially less volume than the New York
Stock Exchange and securities of some foreign companies are less liquid and
more volatile than securities of comparable domestic companies. There is
generally less government regulation of foreign stock exchanges, brokers, and
listed companies than there is in the United States. In addition, with
respect to certain foreign countries, there is a possibility of expropriation
or confiscatory taxation, political or social instability, or diplomatic
developments which could adversely affect investment in securities of issuers
located in those countries. Individual foreign economies may differ
favorable or unfavorably from the United States economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. If it should
become necessary, the Portfolios would normally encounter greater
difficulties in commencing a lawsuit against the issuer of a foreign security
than it would against a United States issuer.
INVESTMENTS IN EASTERN EUROPE. Investments in Eastern Europe are
speculative and involve a high degree of risk of loss. The emergence of
Eastern European capital markets is in part a function of the policies of the
former Gorbachev administration. With the recent change in power and
restructuring of the Soviet Union there is no assurance that such markets
will continue to constitute a viable investment opportunity for the
Portfolios and there may be a high degree of risk of expropriation without
compensation. The governments of a number of Eastern European countries
previously expropriated large quantities of private property. The claims of
many property owners against those governments were never finally settled.
There is no assurance that such expropriation will not occur again. If such
expropriation were to recur, the Portfolios could lose all or a substantial
portion of their investments in such countries. Further, no accounting
standards comparable to those in the U.S. exist in Eastern European
countries. Finally, even though certain Eastern European currencies may be
convertible into United States dollars, the conversion rates may be
artificial to the actual market values and may be adverse to the shareholders
of the Portfolios. Presently the Global Equity Portfolio is the only
Portfolio which intends to invest in these types of securities.
The governments of certain Eastern European countries may require that a
governmental or quasi-governmental authority act as custodian of the Fund's
assets invested in such countries. These authorities may not be qualified to
act as foreign custodians under the 1940 Act and as a result, the Portfolios
would not be able to invest in the countries in the absence of exemptive
relief from the Securities and Exchange Commission. In addition, the risk of
loss through government confiscation may be increased in such countries.
FOREIGN CURRENCY TRANSACTIONS. The Global Equity, Equity, Mid Cap,
Small Cap and Managed Portfolios do not intend to speculate in foreign
currency. When a Portfolio agrees to purchase or sell a security in a
foreign market it will generally be obligated to pay or entitled to receive a
specified amount of foreign currency and will then generally convert dollars
to that currency in the case of a purchase or that currency to dollars in the
case of a sale. The Global Equity, Mid Cap, Equity, Small Cap and Managed
Portfolios intend to conduct their foreign currency exchange transactions on
a spot basis (i.e., cash) at the spot rate prevailing in the foreign currency
exchange market or through entering into forward foreign currency contracts
("forward contracts") to purchase or sell foreign currencies. Such
Portfolios may enter into forward contracts in order to lock in the U.S.
dollar amount they must pay or expect to receive for a security they have
agreed to buy or sell or with respect to their positions when the Portfolios
believe that a particular currency may change unfavorably compared to the
U.S. dollar. A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large, commercial banks)
and their customers. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades.
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The Fund's custodian bank will place cash, U.S. Government securities or
debt securities in separate accounts of the Portfolios in an amount equal to the
value of the Portfolios' total assets committed to the consummation of any such
contract in such account and if the value of the securities placed in the
separate accounts decline, additional cash or securities will be placed in the
accounts on a daily basis so that the value of the accounts will equal the
amount of the Portfolios' commitments with respect to such forward contracts.
If, rather than cash, portfolio securities are used to secure such a forward
contract, on the settlement of the forward contract for delivery by the
Portfolios of a foreign currency, the Portfolios may either sell the portfolio
security and make delivery of the foreign currency, or they may retain the
security and terminate their contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating them to purchase, on
the same settlement date, the same amount of foreign currency.
The Global Equity Portfolio may effect currency hedging transactions in
foreign currency futures contracts, exchange-listed and over-the-counter call
and put options on foreign currency futures contracts and on foreign currencies.
The use of forward futures or options contracts will not eliminate fluctuations
in the underlying prices of the securities which the Global Equity Portfolio
owns or intends to purchase or sell. They simply establish a rate of exchange
for a future point in time. Additionally, while these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
their use tends to limit any potential gain which might result from the increase
in value of such currency. In addition, such transactions involve costs and may
result in losses.
Although each Portfolio values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will, however, do so from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the spread between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
Under Internal Revenue Code Section 988, special rules are provided for
certain transactions in a currency other than the taxpayer's functional currency
(i.e., unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gains or losses from forward contracts,
futures contracts that are not "regulated futures contracts," and from unlisted
options will be treated as ordinary income or loss under Internal Revenue Code
Section 988. Also, certain foreign exchange gains or losses derived with
respect to fixed-income securities are also subject to Section 988 treatment.
In general, therefore, Internal Revenue Code Section 988 gains or losses will
increase or decrease the amount of the Portfolio's investment company taxable
income available to be distributed to shareholders as ordinary income, rather
than increasing or decreasing the amount of the Portfolio's net capital gain.
Additionally, if Internal Revenue Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Portfolio would not
be able to make any ordinary income distributions.
FOREIGN CUSTODY. Rules adopted under the 1940 Act permit the Portfolios to
maintain their securities and cash in the custody of certain eligible banks and
securities depositories. The Portfolios' holdings of securities of issuers
located outside of the U.S. will be held by the Fund's sub-custodians who will
be approved by the trustees or by the trustees' delegate in accordance with such
Rules. The trustees or their delegate will determine that the Portfolios' assets
will be subject to reasonable care, based on standards applicable to custodians
in the relevant market, after considering all factors relevant to the
safekeeping of such assets including but not limited to, the custodian's
practices, procedures and internal controls; the custodian's general reputation;
and whether the Portfolios will have jurisdiction against the custodian.
However, no assurances can be given that the trustees' or their delegates'
appraisal of the risks in connection with foreign custodial arrangements will
always be correct
13
<PAGE>
or that expropriation, nationalization, freezes (including currency
blockage), confiscations or any other loss of assets that would affect assets
of the Portfolio will not occur, and shareholders bear the risk of losses
arising from those or other similar events.
CONVERTIBLE SECURITIES. As specified in the Prospectus, certain of the
Portfolios may invest in fixed-income securities which are convertible into
common stock. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function
of its "investment value" (its value as if it did not have a conversion
privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, the convertible security will sell at some premium over
its conversion value. (This premium represents the price investors are willing
to pay for the privilege of purchasing a fixed-income security with a
possibility of capital appreciation due to the conversion privilege.) At such
times the price of the convertible security will tend to fluctuate directly with
the price of the underlying equity security. Convertible securities may be
purchased by the Portfolios at varying price levels above their investment
values and/or their conversion values in keeping with the Portfolios'
objectives.
FOREIGN AND DOMESTIC SECURITY SELECTION PROCESS. The allocation of assets
between U.S. and foreign markets for the Global Equity Portfolio in particular,
as well as all other Portfolios which invest in foreign securities in general,
will vary from time to time as deemed appropriate by the Manager. It is a
dynamic process based on an on-going analysis of economic and political
conditions, the growth potential of the securities markets throughout the world,
currency exchange considerations and the availability of attractively priced
securities within the respective markets. In all markets, security selection is
designed to reduce risk through a value oriented approach in which emphasis is
placed on identifying well-managed companies which, in the case of the Global
Equity Portfolio, represent exceptional values in terms of such factors as
assets, earnings and growth potential.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Each Portfolio also may purchase
shares of investment companies or trusts which invest principally in securities
in which the Portfolio is authorized to invest. The return on a Portfolio's
investments in investment companies will be reduced by the operating expenses,
including investment advisory and administrative fees, of such companies. A
Portfolio's investment in an investment company may require the payment of a
premium above the net asset value of the investment company's shares, and the
market price of the investment company thereafter may decline without any change
in the value of the investment company's assets. The Portfolio will invest in
an investment company only if it is believed that the potential benefits of such
investment are sufficient to warrant the payment of any such premium. Under the
1940 Act, the Portfolios cannot invest more than 10% of their assets,
respectively, in investment companies or more than 5% of their total assets,
respectively, in the securities of any one investment company, nor may they own
more than 3% of the outstanding voting securities of any such company,
respectively, except that these limits do not apply if a portfolio is acquiring
securities of an investment company in the same group of investment companies,
the portfolio only invests in securities of other investment companies that are
part of the same group, government securities and short-term paper; sales or
distribution charges are charged only at one of the acquired or acquiring
investment companies and the acquired company has a policy restricting it from
14
<PAGE>
investing in securities of other investment companies under these exceptions.
To the extent a Portfolio invests in securities in bearer form it may be more
difficult to recover securities in the event such securities are lost or stolen.
PASSIVE FOREIGN INVESTMENT COMPANY INCOME. If a Portfolio invests in an
entity which is classified as a "passive foreign investment company" ("PFIC")
for U.S. tax purposes, the application of certain technical tax provisions
applying to such companies could result in the imposition of federal income tax
with respect to such investments at the Portfolio level which could not be
eliminated by distributions to shareholders. Under the Taxpayer Relief Act of
1997, a mark-to-market regime was established that allows a regulated investment
company ("RIC") to avoid most, if not all, of the difficulties posed by the
PFIC rules. In any event, it is not anticipated that any taxes on a Portfolio
with respect to investments in PFIC's would be significant.
INVESTMENT RESTRICTIONS
The Fund's significant investment restrictions applicable to the Portfolios
are described in the Prospectus. The following investment restrictions have
been adopted by the Fund as fundamental policies which cannot be changed without
the vote of a majority of the outstanding voting securities of that Portfolio.
Such a majority is defined as the lesser of (a) 67% or more of the shares of the
Portfolio present at the meeting of shareholders of the Fund, if the holders of
more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy or (b) more than 50% of the outstanding shares of the
Portfolio. For the purposes of the following restrictions and those contained
in the Prospectus: (i) all percentage limitations apply immediately after a
purchase or initial investment, unless specifically stated otherwise; and (ii)
any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total assets does not require
elimination of any security from the Portfolio.
ADDITIONAL RESTRICTIONS APPLICABLE TO ALL PORTFOLIOS. Each Portfolio of
the Fund may not:
1. Make loans of money or securities, except (a) by the purchase of debt
obligations in which the Portfolio may invest consistent with its investment
objectives and policies; (b) by investing in repurchase agreements; or (c) by
lending its portfolio securities, not in excess of 33% of the value of a
Portfolio's total assets, made in accordance with guidelines adopted by the
Fund's Board of Trustees, including maintaining collateral from the borrower
equal at all times to the current market value of the securities loaned.
2. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or trustee of the Fund or any officer or director of the Manager
owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding voting securities of such issuer.
3. Pledge its assets or assign or otherwise encumber them in excess of
10% of its net assets (taken at market value at the time of pledging) and then
only to secure borrowings effected within the limitations set forth in the
Prospectus.
4. Purchase or sell real estate; however, the Portfolios may purchase
marketable securities of issuers which engage in real estate operations or which
invest in real estate or interests therein, and securities which are secured by
real estate or interests therein.
5. Purchase securities on margin (except for such short-term loans as are
necessary for the clearance of
15
<PAGE>
purchases of portfolio securities) or sell securities short except "against
the box." (Collateral arrangements in connection with transactions in
options and futures are not deemed to be margin transactions.)
6. Invest in oil, gas or mineral exploration or developmental programs,
except that a Portfolio may invest in the securities of companies which operate,
invest in, or sponsor such programs.
7. Engage in the underwriting of securities except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security.
8. Invest for the purposes of exercising control or management of another
company.
9. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a) entering
into any repurchase agreement; (b) borrowing money in accordance with
restrictions described above; or (c) lending portfolio securities.
RESTRICTIONS APPLICABLE TO THE MONEY MARKET PORTFOLIO ONLY. The Money
Market Portfolio may not:
1. Invest in securities other than those listed in the description of its
investment objectives and policies above and in the Prospectus.
2. Invest in securities maturing more than one year (within the meaning
of the 1940 Act) from the date of purchase, except that where securities are
held subject to repurchase agreements having a term of one year or less from the
date of delivery, the securities subject to the agreement may have maturity
dates in excess of one year from date of delivery.
3. Purchase securities for which there are legal or contractual
restrictions on resale (i.e. restricted securities).
RESTRICTIONS APPLICABLE TO THE EQUITY, MID CAP, MANAGED, GLOBAL EQUITY AND
SMALL CAP PORTFOLIOS ONLY. Each of the above Portfolios may not:
1. Invest more than 5% of the value of its total assets in warrants not
listed on either the New York or American Stock Exchange. However, the
acquisition of warrants attached to other securities is not subject to this
restriction.
2. Invest more than 5% of its total assets in securities which are
restricted as to disposition under the federal securities laws or otherwise.
This restriction shall not apply to securities received as a result of a
corporate reorganization or similar transaction affecting readily marketable
securities already held by the Equity, Mid Cap, Managed, Global Equity and/or
Small Cap Portfolios; however, each Portfolio will attempt to dispose in an
orderly fashion of any securities received under these circumstances to the
extent that such securities, together with other unmarketable securities, exceed
15% of that Portfolio's total assets.
16
<PAGE>
TRUSTEES AND OFFICERS
The trustees and officers of the Fund, and their principal occupations
during the past five years, are set forth below. Trustees who are "interested
persons", as defined in the 1940 Act, are denoted by an asterisk. The address
of each is One World Financial Center, New York, New York 10281, except as
noted. As of March 31, 1998, the trustees and officers of the Fund as a group
owned none of its outstanding shares.
JOSEPH M. LA MOTTA, CHAIRMAN OF THE BOARD OF TRUSTEES AND PRESIDENT*
Age: 65
Chairman Emeritus of Oppenheimer Capital, a registered investment adviser;
Chairman of the Board and President of OCC Cash Reserves, Inc., an open-end
investment company.
PAUL Y. CLINTON, TRUSTEE
39 Blossom Avenue
Osterville, Massachusetts 02655
Age: 67
Principal of Clinton Management Associates, a financial and venture capital
consulting firm; formerly Director, External Affairs, Kravco Corporation, a
national real estate owner and property management corporation; Trustee of
Capital Cash Management Trust, a money-market fund and Director of Narragansett
Tax-Free Fund, a tax-exempt bond fund; Director of Oppenheimer Quest Value Fund,
Inc., Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value
Fund, Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term
New York Municipals and Bond Fund Series, Oppenheimer Bond Fund for Growth,
Oppenheimer Mid Cap Fund, and OCC Cash Reserves, Inc.; Trustee of OCC
Accumulation Trust and Oppenheimer Quest for Value Funds, each of which is an
open-end investment company.
THOMAS W. COURTNEY, C.F.A., TRUSTEE
P. O. Box 8186
Naples, Florida 33941
Age: 64
Principal of Courtney Associates, Inc., a venture capital business; former
General Partner of Trivest Venture Fund, a private venture capital fund; former
President of Federated Investment Counseling, Inc.; Trustee of Cash Assets
Trust, a money market fund; Director of Oppenheimer Quest Value Fund, Inc.,
Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Capital Value Fund,
Inc., Rochester Fund Municipals, Rochester Portfolio Series Limited Term New
York Municipals and Bond Fund Series, Oppenheimer Bond Fund for Growth,
Oppenheimer Mid Cap Fund, OCC Cash Reserves, Inc., and Trustee of Oppenheimer
Quest for Value Funds, each of which is an open-end investment company; former
President of Boston Company Institutional Investors, Inc.; former Director of
The Financial Analysts Federation; Trustee of Hawaiian Tax-Free Trust and Tax
Free Trust of Arizona, tax-exempt bond funds; and Director of several privately
owned corporations.
LACY B. HERRMANN, TRUSTEE
380 Madison Avenue, Suite 2300
New York, New York 10017
Age: 68
Chairman of the Board and Chief Executive Officer of Aquila Management
Corporation (since 1984), the sponsoring organization and Administrator and/or
Advisor or Sub-Advisor to the following open-end investment companies, and
Chairman of the Board of Trustees and President of each: Churchill Cash Reserves
Trust (since 1985), Short Term Asset Reserves (from 1984 to 1993), Pacific
Capital Cash Assets Trust (since 1984), Pacific Capital U.S. Treasuries Cash
Assets Trust (since 1988), Pacific Capital Tax-
17
<PAGE>
Free Cash Assets Trust (since 1988), Prime Cash Fund (from 1982 - 1996),
Oxford Cash Management Fund (1982-1988) and Trinity Liquid Assets Trust (1982
- - 1985), each of which is a money market fund, Churchill Tax-Free Fund of
Kentucky (since 1986), Tax-Free Fund of Colorado (since 1986), Tax-Free Trust
of Oregon (since 1985), Tax-Free Trust of Arizona (since 1985), Tax-Free Fund
For Utah (since 1992) Narragansett Insured Tax-Free Income Fund (since 1992),
and Hawaiian Tax-Free Trust (since 1984), each of which is a tax-free
municipal bond fund, and of Aquila Rocky Mountain Equity Fund (since 1994)
and Aquila Cascadia Equity Fund (since 1996), each of which is a regional
equity fund; Vice President, Director, Secretary, and formerly Treasurer of
Aquila Distributors, Inc. (since 1981), distributor of each of the above
funds; President and Chairman of the Board of Trustees of Capital Cash
Management Trust (CCMT), a money market fund (since 1981) and an Officer and
Trustee/Director of its predecessors (since 1974); President and Director of
STCM Management Company, Inc., sponsor and Subadvisor to CCMT; Director,
Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest Global Value Fund,
Inc., Oppenheimer Quest Capital Value Fund, Inc., Rochester Fund Municipals,
Rochester Portfolio Series Limited Term New York Municipals and Bond Fund
Series, Oppenheimer Bond Fund for Growth, Oppenheimer Mid Cap Fund, OCC Cash
Reserves, Inc., Trustee of Oppenheimer Quest for Value Funds, each of which
is an open-end investment company; Trustee of Brown University since 1990;
actively involved for many years in leadership roles with university, school,
and charitable organizations.
GEORGE LOFT, TRUSTEE
51 Herrick Road
Sharon, Connecticut 06069
Age: 83
Private Investor; Director of OCC Cash Reserves, Inc., Oppenheimer Quest Value
Fund, Inc., Oppenheimer Quest Capital Value Fund, Inc., Rochester Fund
Municipals, Rochester Portfolio Series Limited Term New York Municipals and Bond
Fund Series, Oppenheimer Bond Fund for Growth, Oppenheimer Mid Cap Fund,
Oppenheimer Quest Global Value Fund, Inc., Trustee of Oppenheimer Quest for
Value Funds, all of which are open-end investment companies.
GAVIN ALBERT, VICE PRESIDENT AND PORTFOLIO MANAGER
Age: 29
Vice President of Oppenheimer Capital since December 1996 and securities analyst
with Oppenheimer Capital since 1994; management consultant with EDS Energy
Management in 1994; attended Vanderbilt University Business School from
September 1992 to May 1994 (Masters of Business Administration degree in finance
and management).
TIMOTHY CURRO, VICE PRESIDENT AND PORTFOLIO MANAGER
Age: 38
Vice President of Oppenheimer Capital since November 1996; general partner of
Value Holdings, L.P., an investment partnership from May 1995 to November 1996;
Vice President in the Equity Research Department of UBS Securities Inc. from
June 1994 to May 1995 and from January 1991 through February 1993 and a partner
with Omega Advisors, Inc. from March 1993 to March 1994.
PIERRE DAVIRON, VICE PRESIDENT AND PORTFOLIO MANAGER
Age: 56
President and Chief Investment Officer, Oppenheimer Capital International, a
division of Oppenheimer Capital and a Managing Director of Oppenheimer Capital;
Executive Vice President of The Central European Value Fund, Inc., a closed-end
investment company. Previously Chairman and Chief Executive Officer at
Indosuez
18
<PAGE>
Gartmore Asset Management, a division of Banque Indosuez, Paris, France.
Previously Managing Director in Mergers and Acquisitions at J.P. Morgan.
BERNARD H. GARIL, VICE PRESIDENT
Age: 57
President and Chief Operating Officer of OpCap Advisors and a Managing Director
of Oppenheimer Capital; Vice President of OCC Cash Reserves, Inc., an open-end
investment company and President of The Central European Value Fund, Inc. and
Municipal Advantage Fund, Inc., closed-end investment companies.
RICHARD GLASEBROOK, VICE PRESIDENT AND PORTFOLIO MANAGER
Age: 49
Managing Director, Oppenheimer Capital; formerly Partner and Portfolio Manager
of Delafield Asset Management.
JOHN GIUSIO, VICE PRESIDENT
Age: 54
Vice President, Oppenheimer Capital; Vice President of OCC Cash Reserves, Inc.,
an open-end investment company; formerly Vice President, Salomon Brothers.
LOUIS GOLDSTEIN, VICE PRESIDENT AND PORTFOLIO MANAGER
Age: 37
Senior Vice President, Oppenheimer Capital SINCE 1998, joined Oppenheimer
Capital as Vice President and security analyst in 1991.
ALAN GUTMANN, VICE PRESIDENT AND PORTFOLIO MANAGER
Age: 37
Senior Vice President and Equity Portfolio Manager, Oppenheimer Capital; joined
Oppenheimer Capital in 1991 as a Security Analyst.
BENJAMIN GUTSTEIN, VICE PRESIDENT & PORTFOLIO MANAGER
Age: 29
Assistant Vice President, Oppenheimer Capital since 1996; joined the firm in
1993; prior thereto, associate at Lehman Brothers.
VIKKI HANGES, VICE PRESIDENT & PORTFOLIO MANAGER
Age: 38
Senior Vice President, Oppenheimer Capital since 1998; Vice President from 1992;
Assistant Vice President, 1987-1992.
DEBORAH KABACK, SECRETARY
Age: 46
Senior Vice President and Deputy General Counsel, Oppenheimer Capital; Secretary
of OCC Cash Reserves, Inc., an open-end investment company and Secretary of The
Central European Value Fund, Inc. and Municipal Advantage Fund Inc., closed-end
investment companies.
19
<PAGE>
TIMOTHY MCCORMACK, VICE PRESIDENT & PORTFOLIO MANAGER
Age: 33
Senior Vice President, Oppenheimer Capital since 1998 and Vice President since
1995; joined Oppenheimer Capital in 1994; formerly Security Analyst at U.S.
Trust Co.; formerly Security Analyst at Gabelli and Company.
RICHARD L. PETEKA, ASSISTANT TREASURER
Age: 36
Vice President, Oppenheimer Capital; Assistant Treasurer of OCC Cash Reserves,
Inc., an open-end investment company and Treasurer of The Central European
Value Fund, Inc. and Municipal Advantage Fund Inc., closed-end investment
companies.
EILEEN ROMINGER, VICE PRESIDENT AND PORTFOLIO MANAGER
Age: 43
Managing Director, Oppenheimer Capital.
SHELDON M. SIEGEL, TREASURER
Age: 55
Managing Director and Treasurer, Oppenheimer Capital; Treasurer of OpCap
Advisors; Treasurer of OCC Cash Reserves, Inc., an open-end investment company.
REMUNERATION OF OFFICERS AND TRUSTEES. All officers of the Fund are
officers of Oppenheimer Capital and will receive no salary or fee from the
Fund. The following table sets forth the aggregate compensation paid by the
Fund to each of the Trustees during its fiscal year ended December 31, 1997
and the aggregate compensation paid to each of the Trustees by all of the
funds in the Advisor's Fund Complex during each such fund's 1997 fiscal year.
The Managed Portfolio, the Small Cap, Equity and Global Equity Portfolios of
the Fund were the only Portfolios of the Fund that paid fees to the Trustees.
20
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS ACCRUED AS ESTIMATED ANNUAL FROM THE FUND
NAME OF TRUSTEE COMPENSATION PART OF FUND BENEFITS UPON AND THE FUND
OF THE FUND FROM THE FUND EXPENSES RETIREMENT COMPLEX
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paul Clinton $15,375 0 0 $96,630
- -----------------------------------------------------------------------------------------------
Thomas Courtney $15,375 0 0 $96,630
- -----------------------------------------------------------------------------------------------
Lacy Herrmann $14,325 0 0 $89,193
- -----------------------------------------------------------------------------------------------
Joseph La Motta 0 0 0 0
- -----------------------------------------------------------------------------------------------
George Loft $15,375 0 0 $98,068
- -----------------------------------------------------------------------------------------------
</TABLE>
For the purpose of the chart above "Fund Complex" includes the Fund, other funds
advised by the Manager and the Oppenheimer Quest Funds for which the Manager
serves as subadvisor.
CONTROL PERSONS
As of March 31, 1998, shares of the Portfolios were held by Oppenheimer
Capital and the Variable Accounts of the following insurance companies, with the
figures beneath each Portfolio representing that company's holdings as a
percentage of each Portfolio's total outstanding shares.
21
<PAGE>
PORTFOLIO SHAREHOLDERS OF RECORD AS OF MARCH 31, 1998(1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
PORTFOLIOS
- ------------------------------------------------------------------------------------------
SHAREHOLDERS MONEY U.S. GOVT. GLOBAL EQUITY SMALL MANAGED MID CAP
MARKET INCOME EQUITY CAP
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Mutual Life
Insurance Company 100% 23.69% --- 10.75% 3.48% 9.87% ---
of New York (New
York, NY) & The
MONY Life
Insurance Company
of America
(New York, NY)
- ------------------------------------------------------------------------------------------
Provident Mutual
Life Insurance --- --- --- 80.55% 16.28% 11.44% ---
Company
(Philadelphia, PA)
& Providentmutual
Life and Annuity
Company of America
(Newark, DE)
- ------------------------------------------------------------------------------------------
Connecticut General
Life Insurance --- --- 96.90% .24% 16.00% 20.64% ---
Company & CIGNA
Life Insurance
Company
(Hartford, CT)
- ------------------------------------------------------------------------------------------
Providian Life and
Health Insurance --- 29.84% --- --- 11.30% 4.64% ---
Company
(Frazer, PA)
- ------------------------------------------------------------------------------------------
American Enterprise
Life Insurance --- 41.57% --- .71% .21% 1.61% ---
Company
(Indianapolis, IN)
- ------------------------------------------------------------------------------------------
Oppenheimer Capital
(New York, NY) --- 4.90% --- --- --- --- 99.85%
- ------------------------------------------------------------------------------------------
IL Annuity and
Insurance Company --- --- --- --- 2.46% 2.35% ---
(Indianapolis, IN)
- ------------------------------------------------------------------------------------------
PRUCO Life
Insurance Company --- --- --- --- 46.89% 46.64% ---
of New Jersey and
PRUCO Life
Insurance Company
(Newark, NJ)
- ------------------------------------------------------------------------------------------
22
<PAGE>
<CAPTION>
- ------------------------------------------------------------------------------------------
PORTFOLIOS
- ------------------------------------------------------------------------------------------
SHAREHOLDERS MONEY U.S. GOVT. GLOBAL EQUITY SMALL MANAGED MID CAP
MARKET INCOME EQUITY CAP
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Transamerica
(Los Angeles, CA) --- --- --- --- .01% .02% ---
- ------------------------------------------------------------------------------------------
ReliaStar Life
Insurance Company --- --- 3.10% 7.74% 3.37% 2.79% ---
(Minneapolis, MN)
- ------------------------------------------------------------------------------------------
Sun Life of
Canada (U.S.) --- --- --- .01% --- --- .15%
(Boston, MA)
- ------------------------------------------------------------------------------------------
</TABLE>
- --Company does not offer shares of the Portfolios of the Fund.
(1) This chart lists all Variable Account shareholders of record of the
Portfolios as of March 31, 1998 and all holdings of shares of the Portfolios
by Oppenheimer Capital, the parent of the Manager. To the best knowledge of
the Fund, no Contractowner held units equivalent to 5% or more of the shares
of any Portfolio of the Fund as of March 31, 1998.
Shares of the Money Market Portfolio were acquired by Oppenheimer
Capital to provide initial capital for the Fund. Shares of the U.S.
Government Income and the Mid Cap Portfolio were acquired by Oppenheimer
Capital to provide capital for the Portfolio so that the Manager could
commence a meaningful investment program for the Portfolios, pending the
acquisition of shares of the Portfolios by Variable Accounts. The shares
held by the Variable Accounts generally will be voted in accordance with
instructions of Contractowners. Under certain circumstances however, the
insurance companies, on behalf of their respective Variable Accounts, may
disregard voting instructions received from Contractowners. The shares held
by Oppenheimer Capital will be voted in the same proportions as those voted
by the insurance companies which are held in their respective Variable
Accounts. Any shareholder of record listed in the above chart beneficially
owning more than 25% of a particular Portfolio's shares may be considered to
be a "controlling person" of that Portfolio by virtue of the definitions
contained in the 1940 Act. The vote of such shareholder of record could have
a more significant effect on matters presented to shareholders for approval
than the votes of the Fund's other shareholders.
INVESTMENT MANAGEMENT AND OTHER SERVICES
THE ADVISORY AGREEMENT. The initial Advisory Agreement was first
approved by the Fund's Board of Trustees, including a majority of the
Trustees who are not "interested persons" of the Fund (as defined in the 1940
Act) and who have no direct or indirect financial interest in such Agreement
(the "Independent Trustees") on May 26, 1994, and by the Manager as then sole
shareholder of the Fund on September 12, 1994 (the "Initial Advisory
Agreement"). An amendment to the initial Advisory Agreement was approved by
the Fund's Board of Trustees, including the Independent Trustees, on January
30, 1996 and by the shareholders of the Equity, Global Equity, Managed and
Small Cap Portfolios of the Fund on April 15, 1996 and was effective as of
May 1, 1996. Under the Initial Advisory Agreement, the Manager received from
the Fund, compensation on a monthly basis, at the annual
23
<PAGE>
rate of 0.60% of the average daily net assets of each of the Equity, Small
Cap, Managed and U.S. Government Income Portfolios, 0.75% of the average
daily net assets of the Global Equity Portfolio, and 0.40% of the average
daily net assets of the Money Market Portfolio. Under the amendment to the
Initial Advisory Agreement, effective May 1, 1996, the Manager receives from
the Fund, compensation on a monthly basis, at an annual rate of 0.80% on the
first $400 million, 0.75% on the next $400 million and 0.70% thereafter of
the average daily net assets of the Equity, Global Equity, Managed and Small
Cap Portfolios, respectively. Compensation for services provided by the
Manager to the Money Market and U.S. Government Portfolios remain unchanged.
The amendment to the Initial Advisory Agreement also provides that the
Manager will limit total operating expenses of the Portfolios of the Fund to
1.25% (net of any expense offsets) of their respective average daily net
assets.
On February 28, 1997, the Board of Trustees including a majority of the
Trustees who are not "interested persons" of the Fund, approved a new
Advisory Agreement (the "Advisory Agreement"), on identical terms as the
initial Advisory Agreement, as amended, to take effect upon the acquisition
by PIMCO Advisors L.P. and its affiliates (the "PIMCO Partners") of a
controlling interest in Oppenheimer Capital and its subsidiary OpCap
Advisors, the Manager of the Fund (the "Transaction"). The Advisory
Agreement was approved by the shareholders of each Portfolio of the Fund at
a Special Meeting of Shareholders held on October 14, 1997. The Transaction
was consummated on November 4, 1997 and the new Advisory Agreement became
effective on November 5, 1997. The new Advisory Agreement was amended on
February 1, 1998 to provide that the Manager will limit total operating
expenses of all Portfolios of the Fund except the Global Equity Portfolio to
1.00% (net of any expense offsets) of their respective average daily net
assets and that the Manager will limit total operating expenses of the Global
Equity Portfolio to 1.25% (net of any expense offsets) of its average daily
net assets.
Under the Advisory Agreement, the Manager is required to: (i) regularly
provide investment advice and recommendations to each Portfolio of the Fund
with respect to its investments, investment policies and the purchase and
sale of securities; (ii) supervise continuously and determine the securities
to be purchased or sold by the Fund and the portion, if any, of the assets of
each Portfolio of the Fund to be held uninvested; and (iii) arrange for the
purchase of securities and other investments by each Portfolio of the Fund
and the sale of securities and other investments held by each Portfolio of
the Fund.
The Advisory Agreement also requires the Manager to provide
administrative services for the Fund, including (1) coordination of the
functions of accountants, counsel and other parties performing services for
the Fund and (2) preparation and filing of reports required by federal
securities and "blue sky" laws, shareholder reports and proxy materials.
Expenses not expressly assumed by the Manager under the Advisory
Agreement or by OCC Distributors (the "Distributor") are paid by the Fund.
The Advisory Agreement lists examples of expenses paid by the Fund, of which
the major categories relate to interest, taxes, fees to non-interested
trustees, legal and audit expenses, custodian and transfer agent expenses,
stock issuance costs, certain printing and registration costs, and
non-recurring expenses, including litigation.
For the fiscal year ended December 31, 1995, the total advisory fees
accrued or paid by the Equity, Managed, Small Cap and Money Market Portfolios
were $38,504, $447,678, $72,770 and $16,447, respectively, of which,
$34,745, $55,036, $30,075 and $5,702, respectively, was waived by the
Manager.
24
<PAGE>
For the fiscal year ended December 31, 1995, the Manager waived its fee of
$9,022 and $4,873 for the Global Equity and U.S. Government Income
Portfolios, respectively. In addition, the Manager reimbursed operating
expenses of $23,340 and $27,434, respectively, to such Portfolios. For
the fiscal year ended December 31, 1996, the total advisory fees accrued or
paid by the Equity, Managed, Small Cap, Money Market, U.S. Government Income
and Global Equity Portfolios were $109,057, $972,381, $165,735, $16,388,
$14,797 and $71,811, respectively, of which $18,150, $8,220, $17,823,
$11,550, $14,797 and $37,689, was waived by the Manager. In addition, the
Manager reimbursed operating expenses of $19,305 for the U.S. Government
Income Portfolio. For the fiscal year ended December 31, 1997, the total
advisory fees accrued or paid by the Equity, Managed, Small Cap, Money
Market, U.S. Government Income and Global Equity Portfolios were $199,896,
$2,321,835, $498,382, $17,502, $35,757 and $184,504, respectively, of which
$3,123, $8,028 and $2,537 was waived by the Manager with respect to the Money
Market Portfolio, the U.S. Government Income Portfolio, and the Global Equity
Portfolio, respectively.
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard for its
obligations thereunder, the Manager is not liable for any act or omission in
the course of, or in connection with, the rendition of services thereunder.
The Agreement permits the Manager to act as investment advisor for any other
person, firm, or corporation.
PORTFOLIO TRANSACTIONS. Portfolio decisions are based upon
recommendations of the Manager and the judgment of the portfolio managers.
As most, if not all, purchases made by the U.S. Government Income and Money
Market Portfolios will be principal transactions at net prices, those
Portfolios pay no brokerage commissions; however prices of debt obligations
reflect mark-ups and mark-downs which constitute compensation to the
executing dealer. The Portfolios will pay brokerage commissions on
transactions in listed options and equity securities. Prices of securities
purchased from underwriters of new issues include a commission or concession
paid by the issuer to the underwriter, and prices of debt securities
purchased from dealers include a spread between the bid and asked prices.
The Fund seeks to obtain prompt execution of orders at the most favorable net
price. Transactions may be directed to dealers during the course of an
underwriting in return for their brokerage and research services, which are
intangible and on which no dollar value can be placed. There is no formula
for such allocation. The research information may or may not be useful to
the Fund and/or other accounts of the Manager; information received in
connection with directed orders of other accounts managed by the Manager or
its affiliates may or may not be useful to the Fund. Such information may be
in written or oral form and includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of the
Manager, to make available additional views for consideration and comparison,
and to enable the Manager to obtain market information for the valuation of
securities held by the Fund. For the year ended December 31, 1997, the
aggregate dollar amount involved in such transactions was $28,989,343, with
related commissions of $37,385.
Sales of shares of the Fund, subject to applicable rules covering the
Distributor's activities in this area, will also be considered as a factor in
the direction of portfolio transactions to brokers and dealers, but only in
conformity with the price, execution and other considerations and practices
discussed above. The Fund may execute brokerage transactions through CIBC
Oppenheimer Corp., Inc. ("CIBC Oppenheimer"), which prior to the consummation
of the acquisition by the PIMCO Partners of a controlling interest in
25
<PAGE>
Oppenheimer Capital and OpCap Advisors was an affiliated broker-dealer.
The following table presents information as to the allocation of
brokerage commissions paid to CIBC Oppenheimer by the Equity, Global Equity,
Managed, and Small Cap Portfolios for the year ended December 31, 1995, for
the year ended December 31, 1996 and for the year ended December 31, 1997.
<TABLE>
<CAPTION>
- ---------------------------------------------
TOTAL BROKERAGE
PORTFOLIO COMMISSIONS PAID
- ---------------------------------------------
- ---------------------------------------------
1995 1996 1997
- ---------------------------------------------
<S> <C> <C> <C>
EQUITY $ 6,942 $ 14,116 $ 21,025
- ---------------------------------------------
MANAGED 65,136 107,123 224,795
- ---------------------------------------------
SMALL CAP 35,395 52,990 213,701
- ---------------------------------------------
GLOBAL EQUITY 11,614 41,242 49,976
- ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
BROKERAGE COMMISSIONS
PORTFOLIO PAID TO CIBC OPPENHEIMER
- ------------------------------------------------------------------------------
$ AMOUNTS %
- ------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY $ 3,800 $ 5,743 $ 5,221 55.0 40.7 24.8
- ------------------------------------------------------------------------------
MANAGED 26,544 61,183 82,229 41.0 57.1 36.6
- ------------------------------------------------------------------------------
SMALL CAP 12,805 23,565 76,787 36.0 44.5 35.9
- ------------------------------------------------------------------------------
GLOBAL EQUITY 490 4,563 4,675 4.0 11.1 9.4
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
PORTFOLIO TOTAL AMOUNT OF TRANSACTIONS
WHERE BROKERAGE COMMISSIONS PAID TO CIBC OPPENHEIMER
- ------------------------------------------------------------------------------
$ AMOUNTS %
- ------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY $ 2,513,857 $5,747,719 $ 4,578,999 51.3 50.5 32.9
- ------------------------------------------------------------------------------
MANAGED 19,748,754 50,188,690 78,122,478 47.1 59.0 36.2
- ------------------------------------------------------------------------------
SMALL CAP 3,948,081 8,870,059 32,932,369 32.3 45.4 38.1
- ------------------------------------------------------------------------------
GLOBAL EQUITY 450,584 4,995,531 5,840,385 16.0 33.6 27.0
- ------------------------------------------------------------------------------
</TABLE>
(1)The Fund did not effect principal transactions with CIBC Oppenheimer while
it was an affiliated broker-dealer. When the Fund effects principal
transactions with other broker-dealers commissions are imputed.
The Manager currently serves as investment manager to a number of clients,
including other investment companies, and may in the future act as investment
manager or advisor to others. It is the practice of the Manager to cause
purchase or sale transactions to be allocated among the Fund and others whose
assets it manages in such manner as it deems equitable. In making such
allocations among the Fund and other client accounts, the main factors
considered are the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held, and
the opinions of the persons responsible for managing each portfolio of the
26
<PAGE>
Fund and other client accounts. When orders to purchase or sell the same
security on identical terms are placed by more than one of the funds and/or
other advisory accounts managed by the Manager or its affiliates, the
transactions are generally executed as received, although a fund or advisory
account that does not direct trades to a specific broker ("free trades")
usually will have its order executed first. Purchases are combined where
possible for the purpose of negotiating brokerage commissions, which in some
cases might have a detrimental effect on the price or volume of the security
in a particular transaction as far as the Fund is concerned. Orders placed
by accounts that direct trades to a specific broker will generally be
executed after the free trades. All orders placed on behalf of the Fund are
considered free trades. However, having an order placed first in the market
does not necessarily guarantee the most favorable price.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each of the Portfolios of the Fund is
determined each day the New York Stock Exchange (the "NYSE") is open, at the
close of the regular trading session of the NYSE that day, by dividing the
value of the Fund's net assets by the number of shares outstanding. The
NYSE's most recent annual announcement (which is subject to change) states
that it will close on New Year's Day, Presidents' Day, Martin Luther King's
Birthday, Good Friday, Memorial Day, July 4th, Labor Day, Thanksgiving and
Christmas Day. It may also close on other days.
PORTFOLIOS OTHER THAN MONEY MARKET PORTFOLIO. Securities listed on a
national securities exchange or designated national market system securities
are valued at the last reported sale price on that day, or, if there has been
no sale on such day or on the previous day on which the Exchange was open (if
a week has not elapsed between such days), then the value of such security is
taken to be the reported bid price at the time as of which the value is being
ascertained. Securities actively traded in the over-the-counter market but
not designated as national market system securities are valued at the last
quoted bid price. Any securities or other assets for which current market
quotations are not readily available are valued at their fair value as
determined in good faith under procedures established by and under the
general supervision and responsibility of the Fund's Board of Trustees. The
value of a foreign security is determined in its national currency and that
value is then converted into its U.S. dollar equivalent at the foreign
exchange rate in effect on the date of valuation.
The Fund's Board of Trustees has approved the use of nationally
recognized bond pricing services for the valuation of each Portfolio's debt
securities. The service selected by the Manager creates and maintains price
matrices of U.S. Government and other securities from which individual
holdings are valued shortly after the close of business each trading day.
Debt securities not covered by the pricing service are valued based upon bid
prices obtained from dealers who maintain an active market therein or, if no
readily available market quotations are available from dealers, such
securities (including restricted securities and OTC options) are valued at
fair value under the Board of Trustees' procedures. Short-term (having a
remaining maturity of more than sixty days) debt securities are valued on a
"marked-to-market" basis, that is, at prices based upon market quotations for
securities of similar type, yield, quality and maturity. Short-term (having
a maturity of 60 days or less) debt securities are valued at amortized cost
or value.
27
<PAGE>
Puts and calls are valued at the last sales price therefor, or, if there
are no transactions, at the last reported sales price that is within the
spread between the closing bid and asked prices on the valuation date.
Futures are valued based on their daily settlement value. When a Portfolio
writes a call, an amount equal to the premium received is included in the
Portfolio's Statement of Assets and Liabilities as an asset, and an
equivalent credit is included in the liability section. The credit is
adjusted ("marked-to-market") to reflect the current market value of the
call. If a call written by a Portfolio is exercised, the proceeds on the
sale of the underlying securities are increased by the premium received. If
a call or put written by a Portfolio expires on its stipulated expiration
date the Portfolio will realize a gain equal to the amount of the premium
received. If a Portfolio enters into a closing transaction, it will realize
a gain or loss depending on whether the premium was more or less than the
transaction costs, without regard to unrealized appreciation or depreciation
on the underlying securities. If a put held by a Portfolio is exercised by
it, the amount the Portfolio receives on its sale of the underlying
investment is reduced by the amount of the premium paid by the Portfolio.
MONEY MARKET PORTFOLIO. The Money Market Portfolio operates under a
rule of the Securities and Exchange Commission under the 1940 Act (the
"Rule") which permits it to stabilize the price of its shares at $1.00 by
valuing its securities holdings on the basis of amortized cost. The
amortized cost method of valuation is accomplished by valuing a security at
its cost adjusted by straight-line accretion or amortization to maturity of
any discount or premium. The method does not take into account any unrealized
gains or losses.
While the amortized cost method provides certainty in valuation, there
may be periods during which value, as determined by amortized cost, may be
higher or lower than the price the Money Market Portfolio would receive if it
sold its securities on a particular day. During periods of declining
interest rates, the daily yield on the Money Market Portfolio's shares may
tend to be higher (and net investment income and daily dividends lower) than
under a like computation made by a fund with identical investments which
utilizes a method of valuation based upon market prices and estimates of
market prices for all of its portfolio instruments and changing its dividends
based on these changing prices. The converse would apply in a period of
rising interest rates.
Under the Rule, the Fund's Board of Trustees has established procedures
designed to stabilize, to the extent reasonably possible, the Money Market
Portfolio's price per share as computed for the purpose of sales and
redemptions at $1.00. Such procedures must include review of the Money
Market Portfolio's holdings by the Board at such intervals as it may deem
appropriate and at such intervals as are reasonable in light of current
market conditions, to determine whether the Money Market Portfolio's net
asset value calculated by using available market quotations deviates from the
per share value based on amortized cost. "Available market quotations" may
include actual quotations, estimates of market value reflecting current
market conditions based on quotations or estimates of market value for
individual portfolio instruments or values obtained from yield data relating
to a directly comparable class of securities published by reputable sources.
Under the Rule, whenever the deviation between the net asset value per
share of the Money Market Portfolio's shares based on available market
quotations from the Portfolio's amortized cost price per share reaches 1/2
of 1%, the Board of Trustees must promptly consider what action, if any, will
be initiated. However, the Board of Trustees has adopted a policy under
which it will be required to consider what
28
<PAGE>
action to take whenever the deviation between the net asset value per share
based on available market quotations from the Portfolio's amortized cost
price per share reaches $.003. When the Board of Trustees believes that the
extent of any deviation may result in material dilution or other unfair
results to potential investors or existing shareholders, it is required to
take such action as it deems appropriate to eliminate or reduce to the extent
reasonably practicable such dilution or unfair results. Such actions could
include the sale of securities holdings prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity, withholding
dividends or payment of distributions from capital or capital gains,
redemptions of shares in kind, or establishing a net asset value per share
using available market quotations.
DIVIDENDS, DISTRIBUTIONS AND TAXES
MONEY MARKET PORTFOLIO. As discussed in the Prospectus, dividends from
net income of the Money Market Portfolio will be declared on each day the
NYSE is open for business to shareholders of record as of the close of
business the preceding business day. Net income, for dividend purposes,
includes accrued interest and accretion of original issue and market
discount, less the amortization of market premium and less estimated expenses
of the Money Market Portfolio. Net income will be calculated immediately
prior to the determination of net asset value per share of the Money Market
Portfolio (see "Determination of Net Asset Value" above and in the
Prospectus). The Board of Trustees may revise the above dividend policy or
postpone the payment of dividends if the Money Market Portfolio should have
or anticipates any large unexpected expense, loss or fluctuation in net
assets which in the opinion of the Board of Trustees might have a significant
adverse effect on shareholders. Any net realized capital gains will be
declared and paid at least once per calendar year.
OTHER PORTFOLIOS. The dividend policies of the U.S. Government Income,
Equity, Mid Cap, Global Equity, Managed and Small Cap Portfolios are
discussed in the Prospectus. In computing interest income, these Portfolios
will accrete any discount or amortize any premium resulting from the purchase
of debt securities except for mortgage or other receivables-backed
obligations subject to monthly payment of principal and interest.
CAPITAL GAINS AND LOSSES. Gains or losses on the sales of securities by
the Fund will be long-term capital gains or losses if the securities have
been held by the Fund for more than twelve months, regardless of how long you
have held your shares. Gains or losses on the sale of securities held for
twelve months or less will be short-term capital gains or losses. At
December 31, 1997, the Money Market Portfolio's accumulated net realized
capital losses available as a reduction against future net realized capital
gains were $47 of which $14 will expire in 2004 and $33 will expire in 2005.
Capital losses incurred after October 31, 1997 are deemed to arise on the
first business day of the following tax year. During the fiscal year ended
December 31, 1997, the Money Market Portfolio incurred and elected to defer
$145 in net capital losses. To the extent these capital loss carry-forwards
are used to offset future net capital gains, the gains offset will not be
distributed to shareholders. Additionally, the U.S. Government Income
Portfolio utilized $6,203 of net capital loss carry-forward during the fiscal
year ended December 31, 1997.
29
<PAGE>
PORTFOLIO YIELD AND TOTAL RETURN INFORMATION
The performance information shown below reflects deductions for all
charges, expenses and fees of the Fund but does not reflect charges and
deductions which are, or may be, imposed under the Contracts.
MONEY MARKET PORTFOLIO. There are two methods by which the Money Market
Portfolio's yield for a specified period of time (as stated in the
Prospectus) is calculated.
The first method, which results in an amount referred to as the "current
yield," assumes an account containing exactly one share at the beginning of
the period. (The net asset value of this share will be $1.00 except under
extraordinary circumstances.) The net change in the value of the account
during the period is then determined by subtracting this beginning value from
the value of the account at the end of the period; however, capital changes
(i.e., realized gains and losses from the sale of securities and unrealized
appreciation and depreciation) are excluded from the calculation. However,
so that the change will not reflect the capital changes to be excluded, the
dividends used in the yield computation may not be the same as the dividends
actually declared, as the capital changes in question may affect the
dividends declared; see "Dividends, Distributions and Taxes" herein and in
the Prospectus. Instead, the dividends used in the yield calculation will be
those which would have been declared if the capital changes had not affected
the dividends. This net change in the account value is then divided by the
value of the account at the beginning of the period (normally $1.00) and the
resulting figure (referred to as the "base period return") is then annualized
by multiplying it by 365 and dividing it by the number of days in the period;
the result is the "current yield." Normally a seven day period will be used
in determining yields (both the current and the effective yield discussed
below) in published or mailed advertisements.
The second method results in an amount referred to as the "compounded
effective yield." This represents an annualization of the current yield with
dividends reinvested daily. This compounded effective yield for a seven day
period would be computed by compounding the unannualized base period return
by adding one to the base period return, raising the sum to a power equal to
365 divided by 7 and subtracting 1 from the result.
Since calculations of both kinds of yield do not take into consideration
any realized or unrealized gains or losses on the Portfolio's securities
holdings which may have an effect on dividends, the dividends declared during
a period may not be the same on an annualized basis as either kind of yield
for that period.
Yield information may be useful to investors in reviewing the Fund's
performance. However, a number of factors should be considered before using
yield information as a basis for comparison with other investments. An
investment in any of the Portfolios of the Fund is not insured; its yield is
not guaranteed and normally will fluctuate on a daily basis. The yield for
any given past period is not an indication or representation by the Fund of
future yields or rates of return on its shares. The Fund's yield is affected
by portfolio quality, portfolio maturity, type of instruments held, and
operating expenses. When comparing a Portfolio's yield with that of other
investments, investors should understand that certain other investment
alternatives such as money market instruments or bank accounts provide fixed
yields and also that bank accounts may be insured.
30
<PAGE>
<TABLE>
<CAPTION>
YIELD FOR 7-DAY PERIOD ENDED DECEMBER 31, 1997 FOR
MONEY MARKET PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD
CURRENT EFFECTIVE
<S> <C> <C>
MONEY MARKET PORTFOLIO 4.36% 4.45%
</TABLE>
YIELDS FOR PORTFOLIOS OTHER THAN THE MONEY MARKET PORTFOLIO. Yield
information may be useful to investors in reviewing the performance of
certain Portfolios. However, a number of factors should be considered before
using yield information as a basis for comparison with other investments. An
investment in the Fund is not insured; yield is not guaranteed and normally
will fluctuate on a daily basis. The yield for any given past period is not
an indication or representation of future yields or rates of return. Yield
is affected by portfolio quality, portfolio maturity, type of instruments
held and operating expenses. When comparing a Portfolio's yield with that of
other investments, investors should understand that certain other investment
alternatives such as money-market instruments or bank accounts provide fixed
yields and also that bank accounts may be insured.
<TABLE>
<CAPTION>
YIELD FOR 30-DAY PERIOD ENDED DECEMBER 31, 1997 FOR
U.S. GOVERNMENT INCOME PORTFOLIO OF OCC ACCUMULATION TRUST
YIELD
<S> <C>
U.S. GOVERNMENT INCOME PORTFOLIO 5.32%
Current yield is calculated according
to the following formula:
x 6
YIELD= 2(--- + 1) - 1
cd
</TABLE>
Where:
x = daily net investment income, based upon the subtraction of daily accrued
expenses from daily accrued income of the portfolio. Income is accrued
daily for each day of the indicated period based upon yield-to-maturity of
each obligation held in the portfolio as of the day before the beginning of
any thirty-day period or as of contractual settlement date for securities
acquired during the period. Mortgage and other receivables-backed
securities calculate income using coupon rate and outstanding principal
amount.
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
31
<PAGE>
Yield does not reflect capital gains or losses, non-recurring or
irregular income. Gain or loss attributable to actual monthly paydowns on
mortgage or other receivables-backed obligations purchased at a discount or
premium is reflected as an increase or decrease in interest income during the
period.
A Portfolio's average annual total return represents an annualization of
the Portfolio's total return ("T" in the formula below), over a particular
period and is computed by finding the current percentage rate which will
result in the ending redeemable value ("ERV" in the formula below) of a
$1,000 investment, ("P" in the formula below) made at the beginning of a one,
five or ten year period, or for the period from the date of commencement of
the Portfolio's operation, if shorter ("N" in the formula below). The
following formula will be used to compute the average annual total return for
each Portfolio (other than the Money Market Portfolio):
N
P (1 + T) = ERV
In addition to the foregoing, each Portfolio may advertise its total
return over different periods of time by means of aggregate, average, year by
year or other types of total return figures.
Total returns quoted in advertising reflect all aspects of a Portfolio's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Portfolio's net asset value per share
over the period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical investment in a fund over a
stated period, and then calculating the annually compounded percentage rate
that would have produced the same result if the rate of growth or decline in
value had been constant over the period. For example, a cumulative return of
100% over ten years would produce an average annual return of 7.18%, which is
the steady annual return that would equal 100% growth on a compounded basis
in ten years.
In addition to average annual returns, each Portfolio may quote
unaveraged or cumulative total returns reflecting the simple change in value
of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount and may be
calculated for a single investment, a series of investments and/or a series
of redemptions over any time period. Total returns and other performance
information may be quoted numerically or in a table, graph or similar
illustration.
From time to time the Portfolios may refer in advertisements to rankings
and performance statistics published by (1) recognized mutual fund
performance rating services including but not limited to Lipper Analytical
Services, Inc. and Morningstar, Inc., (2) recognized indices including but
not limited to the S&P Composite Stock Price Index, S&P Mid Cap Index, the
Wilshire 750 Mid Cap Index, the Russell Mid Cap Index, Dow Jones Industrial
Average, Consumer Price Index, EAFE Index, Russell 2000 Index, the Morgan
Stanley Capital International (MSCI) All Country World Index and the Lehman
Brothers US Government Bond Index and (3) Money Magazine and other financial
publications including but not limited to magazines, newspapers and
newsletters. Performance statistics may include total returns, measures of
volatility or other methods of portraying performance based on the method
used by the publishers of the information. In addition, comparisons may be
made between yields on certificates of deposit and U.S. government securities
and corporate bonds, and may refer to current or historic financial or
economic trends or conditions.
32
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN OF EQUITY, MANAGED, MID CAP, SMALL CAP, U.S.
GOVERNMENT INCOME AND GLOBAL EQUITY PORTFOLIOS OF OCC ACCUMULATION TRUST(1),(2)
FOR THE ONE YEAR FOR THE FIVE YEAR FOR THE PERIOD FROM
PERIOD ENDED PERIOD ENDED INCEPTION TO
PORTFOLIO DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997*
--------- ----------------- ------------------ --------------------
<S> <C> <C> <C>
EQUITY 26.63% 19.41% 17.56%
MID CAP N/A N/A N/A
MANAGED 22.29% 19.86% 20.32%
SMALL CAP 22.24% 14.61% 15.45%
U.S. GOVERNMENT INCOME 7.04% N/A 7.66%
GLOBAL EQUITY 14.02% N/A 16.91%
</TABLE>
*Inception date of the Global Equity Portfolio is March 1, 1995; the
inception date of the U.S. Government Income Portfolio is January 3, 1995 and
the inception date of the Mid Cap Portfolio is February 9, 1998. The Equity,
Managed and Small Cap Portfolios commenced operations as part of the Fund on
September 16, 1994. The Old Trust commenced operations on August 1, 1988.
(1) On September 16, 1994, an investment company then called Quest for
Value Accumulation Trust (the "Old Trust") was effectively divided into two
investment funds, the Old Trust and the Fund, at which time the Fund
commenced operations. The total net assets for each of the Equity, Small Cap
and Managed Portfolios immediately after the transaction were $86,789,755,
$139,812,573 and $682,601,380, respectively, with respect to the Old Trust
and for each of the Equity, Small Cap and Managed Portfolios, $3,764,598,
$8,129,274 and $51,345,102, respectively, with respect to the Fund.
For the period prior to September 16, 1994, the performance figures
above for each of the Equity, Small Cap and Managed Portfolios reflect the
performance of the corresponding Portfolios of the Old Trust.
(2) Reflects waiver of all or a portion of the advisory fees and
reimbursement of other expenses for certain Portfolios by the Manager.
Without such waivers and reimbursements, the average annual total return
during the periods would have been lower.
ADDITIONAL INFORMATION
DESCRIPTION OF THE TRUST. It is not contemplated that regular annual
meetings of shareholders will be held. Shareholders have the right, upon the
declaration in writing or vote of a majority of the outstanding shares of the
Fund, to remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon written request of the record holders (for
at least six months) of 10% of its outstanding shares. In addition, 10
shareholders holding the lesser of $25,000 or 1% of the Fund's outstanding
shares may advise the Trustees in writing that they wish to communicate with
other shareholders for the purpose of requesting a meeting to remove a Trustee.
The Trustees will then either
33
<PAGE>
give the applicants access to the Fund's shareholder list or mail the
applicants' communication to all other shareholders at the applicants'
expense.
The Declaration of Trust contains an express disclaimer of shareholder
liability for the Fund's obligations, and provides that the Fund shall
indemnify any shareholder who is held personally liable for the obligations
of the Fund. It also provides that the Fund shall assume, upon request, the
defense of any claim made against any shareholder for any act or obligation
of the Fund and shall satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a trust (such as the Fund) to be
held personally liable as a partner under certain circumstances, the risk of
a shareholder incurring any financial loss on account of shareholder
liability is limited to the relatively remote circumstance in which the Fund
itself would be unable to meet the obligations described above.
POSSIBLE ADDITIONAL PORTFOLIO SERIES. If additional Portfolios are
created by the Board of Trustees, shares of each such Portfolio will be
entitled to vote as a class only to the extent permitted by the 1940 Act (see
below) or as permitted by the Board of Trustees. Income and operating
expenses would be allocated fairly among two or more Portfolios by the Board
of Trustees.
Under Rule 18f-2 of the 1940 Act, any matter required to be submitted to
a vote of shareholders of any investment company which has two or more series
outstanding is not deemed to have been effectively acted upon unless approved
by the holders of a "majority" (as defined in that Rule) of the voting
securities of each series affected by the matter. Such separate voting
requirements do not apply to the election of trustees or the ratification of
the selection of independent accountants. The Rule contains special
provisions for cases in which an advisory agreement is approved by one or
more, but not all, series. A change in investment policy may go into effect
as to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.
DISTRIBUTION AGREEMENT. Under the Distribution Agreement between each
Portfolio and the Distributor, the Distributor acts as the Portfolio's agent
in the continuous public offering of its shares. Expenses normally
attributed to sales, including advertising and the cost of printing and
mailing prospectuses other than those furnished to existing shareholders, are
borne by the Distributor.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP serves as independent
accountants of the Fund; their services include examining the annual
financial statements of each Portfolio as well as other related services.
34
<PAGE>
OCC ACCUMULATION TRUST DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT AGENCY NOTES -- 4.3%
$ 380,000 Federal Farm Credit Bank, 5.58%, 2/11/98 $ 377,585
875,000 Federal Home Loan Bank, 5.76%, 1/16/98 872,900
------------
Total U.S. Government Agency Notes (cost -- $1,250,485) $ 1,250,485
------------
SHORT-TERM CORPORATE NOTES -- 8.6%
AUTOMOTIVE -- 1.8%
$ 515,000 General Motors Acceptance Corp., 5.78%, 1/7/98 $ 514,504
------------
MACHINERY/ENGINEERING -- 1.2%
355,000 Deere (John) Capital Corp., 5.75%, 1/7/98 354,660
------------
MISCELLANEOUS FINANCIAL SERVICES -- 4.6%
155,000 American Express Credit Corp., 5.70%, 1/8/98 154,828
1,175,000 Associates Corp., N.A., 5.75%, 1/26/98 1,170,308
------------
1,325,136
------------
RETAIL -- 1.0%
275,000 Sears Roebuck Acceptance Corp., 5.88%, 1/22/98 274,057
------------
Total Short-Term Corporate Notes (cost -- $2,468,357) $ 2,468,357
------------
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS -- 87.3%
ADVERTISING -- 2.6%
17,600 Omnicom Group $ 745,800
------------
AEROSPACE/DEFENSE -- 3.8%
11,000 Lockheed Martin Corp. 1,083,500
------------
AUTOMOTIVE -- 2.1%
17,560 LucasVarity Corp. plc ADR 612,405
------------
BANKING -- 5.9%
6,556 Citicorp 828,924
2,533 Wells Fargo & Co. 859,795
------------
1,688,719
------------
BUILDING & CONSTRUCTION -- 2.6%
10,000 Armstrong World Industries, Inc. 747,500
------------
CHEMICALS -- 4.2%
7,000 du Pont (E.I.) de Nemours & Co. 420,438
7,698 Hercules, Inc. 385,381
8,910 Monsanto Co. 374,220
982 Solutia, Inc. 26,207
------------
1,206,246
------------
COMPUTER SERVICES -- 1.2%
12,000 Sabre Group Holdings, Inc.* $ 346,500
------------
CONGLOMERATES -- 3.3%
4,312 General Electric Co. 316,393
10,000 Textron, Inc. 625,000
------------
941,393
------------
CONSUMER PRODUCTS -- 1.2%
5,844 Avon Products, Inc. 358,676
------------
DRUGS & MEDICAL PRODUCTS -- 2.4%
14,042 Becton, Dickinson & Co. 702,100
------------
ELECTRONICS -- 2.7%
8,076 Arrow Electronics, Inc.* 261,965
8,000 Avnet, Inc. 528,000
------------
789,965
------------
FOOD SERVICES -- 5.5%
4,300 Diageo plc ADR 162,862
13,500 McDonald's Corp. 644,625
17,000 Sysco Corp. 774,563
------------
1,582,050
------------
HEALTH & HOSPITALS -- 3.2%
27,750 Tenet Healthcare Corp.* 919,219
------------
INSURANCE -- 22.0%
16,700 ACE Ltd. 1,611,550
7,372 AFLAC, Inc. 376,894
1,893 American International Group, Inc. 205,864
14,000 Everest Reinsurance Holdings, Inc. 577,500
24,452 EXEL Ltd. 1,549,645
5,000 General Re Corp. 1,060,000
7,000 Mid Ocean Ltd. 379,750
13,000 RenaissanceRe Holdings Ltd. 573,625
------------
6,334,828
------------
LEISURE -- 2.7%
14,000 Carnival Corp. 775,250
------------
MACHINERY/ENGINEERING -- 5.4%
20,000 Caterpillar, Inc. 971,250
16,000 Dover Corp. 578,000
------------
1,549,250
------------
MISCELLANEOUS FINANCIAL SERVICES -- 6.3%
19,912 Countrywide Credit Industries, Inc. 853,727
22,620 Federal Home Loan Mortgage Corp. 948,626
------------
1,802,353
------------
PRINTING/PUBLISHING -- 3.1%
11,000 Donnelley (R.R.) & Sons Co. 409,750
12,000 Reed International, Inc., plc ADR 493,500
------------
903,250
------------
</TABLE>
* Non-income producing security.
A-1
<PAGE>
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
RETAIL -- 2.5%
13,888 May Department Stores Co. $ 731,724
------------
TELECOMMUNICATIONS -- 1.2%
6,000 Sprint Corp. 351,750
------------
TRANSPORTATION -- 3.4%
4,300 AMR Corp.* 552,550
16,000 Canadian Pacific Ltd. 436,000
------------
988,550
------------
Total Common Stocks (cost -- $17,243,294) $ 25,161,028
------------
Total Investments (cost -- $20,962,136) 100.2% $ 28,879,870
Liabilities in Excess of Other Assets (0.2) (59,892)
----- ------------
Total Net Assets 100.0% $ 28,819,978
----- ------------
----- ------------
</TABLE>
SMALL CAP PORTFOLIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT AGENCY NOTES -- 2.6%
$ 2,645,000 Federal Home Loan Bank, 5.72%, 1/2/98 $ 2,644,580
240,000 Federal Home Loan Mortgage Corp.,
5.38%, 1/6/98 239,820
------------
Total U.S. Government Agency Notes (cost -- $2,884,400) $ 2,884,400
------------
SHORT-TERM CORPORATE NOTES -- 12.9%
AUTOMOTIVE -- 1.7%
$ 1,931,000 Ford Motor Credit Co., 5.88%, 1/6/98 $ 1,929,423
------------
CONGLOMERATES -- 2.4%
General Electric Capital Corp.,
1,113,000 5.50%, 1/6/98 1,112,150
1,549,000 5.80%, 1/6/98 1,547,752
------------
2,659,902
------------
MACHINERY/ENGINEERING -- 3.6%
4,000,000 Deere (John) Capital Corp., 5.75%, 1/7/98 3,996,167
------------
MISCELLANEOUS FINANCIAL SERVICES -- 5.2%
Household Financial Corp.,
470,000 5.80%, 1/13/98 469,092
3,162,000 5.85%, 1/13/98 3,155,834
2,091,000 Norwest Financial Inc., 5.72%, 2/3/98 2,080,036
------------
5,704,962
------------
Total Short-Term Corporate Notes (cost -- $14,290,454) $ 14,290,454
------------
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS -- 88.1%
AUTOMOTIVE -- 1.2%
25,900 Borg-Warner Automotive, Inc. $ 1,346,800
------------
BUILDING & CONSTRUCTION -- 2.7%
100,000 Champion Enterprises, Inc.* 2,056,250
60,200 Chicago Bridge & Iron Co. 978,250
------------
3,034,500
------------
CHEMICALS -- 5.6%
34,600 McWhorter Technologies, Inc.* 890,950
132,800 Schulman (A.), Inc. 3,336,600
73,400 Triarc Companies, Inc.* 2,000,150
------------
6,227,700
------------
COMPUTER SERVICES -- 4.4%
85,300 BA Merchants Services, Inc.* 1,514,075
59,367 BancTec, Inc.* 1,591,778
50,600 National Data Corp. 1,827,925
------------
4,933,778
------------
DRUGS & MEDICAL PRODUCTS -- 2.3%
36,400 Dentsply International, Inc. 1,110,200
37,800 SpaceLabs Medical, Inc.* 718,200
36,800 Vital Signs, Inc. 717,600
------------
2,546,000
------------
ELECTRONICS -- 7.9%
83,100 Exar Corp.* 1,371,150
143,500 General Semiconductor, Inc.* 1,659,219
27,120 Oak Industries, Inc.* 805,125
23,200 Tracor, Inc.* 704,700
91,700 Watkins-Johnson Co. 2,378,469
49,900 Watts Industries, Inc. 1,412,793
22,000 Woodhead Industries, Inc. 412,500
------------
8,743,956
------------
ENERGY -- 6.6%
46,600 Basin Exploration, Inc. 827,150
87,700 Cabot Oil & Gas Corp. 1,704,669
46,300 KCS Energy, Inc. 960,725
19,300 Newfield Exploration Co.* 449,931
35,800 Nuevo Energy Co.* 1,458,850
53,100 St. Mary Land & Exploration Co. 1,858,500
------------
7,259,825
------------
HEALTH & HOSPITALS -- 3.1%
98,500 Magellan Health Services, Inc.* 2,117,750
51,300 Trigon Healthcare, Inc.* 1,340,213
------------
3,457,963
------------
INSURANCE -- 16.0%
83,300 CNA Surety Corp.* 1,285,944
51,500 Corvel Corp.* 1,944,125
55,522 Delphi Financial Group, Inc.* 2,498,490
19,000 Enhance Financial Services Group, Inc. 1,130,500
57,000 E.W. Blanch Holdings, Inc. 1,962,937
78,600 Gryphon Holdings, Inc.* 1,316,550
46,000 Horace Mann Educators Corp. 1,308,125
86,800 RenaissanceRe Holdings Ltd. 3,830,050
95,600 United Wisconsin Services, Inc. 2,461,700
------------
17,738,421
------------
</TABLE>
* Non-income producing security.
A-2
<PAGE>
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS (CONTINUED)
MACHINERY/ENGINEERING -- 5.9%
50,000 Ametek, Inc. $ 1,350,000
99,100 Flowserve Corp. 2,768,606
56,200 Kaydon Corp. 1,833,525
14,200 Medusa Corp. 593,738
------------
6,545,869
------------
MANUFACTURING -- 10.2%
243,900 Baldwin Technology, Inc. (Class A)* 1,219,500
26,300 Belden, Inc. 927,075
61,700 Easco, Inc. 817,525
63,900 Guilford Mills, Inc. 1,749,263
141,000 Lydall, Inc.* 2,749,500
83,300 National Patent Development Corp.* 1,155,787
81,200 OmniQuip International, Inc. 1,618,925
38,200 Roper Industries, Inc. 1,079,150
------------
11,316,725
------------
MISCELLANEOUS FINANCIAL SERVICES -- 2.6%
85,300 The BISYS Group, Inc.* 2,836,225
------------
PAPER PRODUCTS -- .8%
42,300 Rock-Tenn Co. 867,150
------------
PRINTING/PUBLISHING -- 3.0%
29,400 Bowne & Co., Inc. 1,172,325
19,800 Harland (John. H.) Co. 415,800
120,000 Hollinger International, Inc. 1,680,000
------------
3,268,125
------------
REAL ESTATE -- .2%
114 Security Capital Group, Inc. (Class A)* 179,798
------------
RETAIL -- .4%
13,000 Longs Drugs Stores Corp. 417,625
------------
TECHNOLOGY -- 7.2%
201,500 Auspex Systems, Inc.* 2,015,000
32,400 Harman International Industries, Inc. 1,374,975
204,900 Wang Laboratories, Inc.* 4,533,412
------------
7,923,387
------------
TELECOMMUNICATIONS -- 3.4%
13,700 ACC Corp.* 691,850
101,000 CommScope, Inc.* 1,357,187
36,200 TCA Cable TV, Inc. 1,665,200
------------
3,714,237
------------
TEXTILES/APPAREL -- 3.7%
34,000 Burlington Industries, Inc.* 469,625
106,800 Paxar Corp. 1,581,975
42,500 Westpoint Stevens, Inc. (Class A)* 2,008,125
------------
4,059,725
------------
TRANSPORTATION -- .9%
63,750 Interpool, Inc. 944,297
------------
Total Common Stocks (cost -- $87,731,210) $ 97,362,106
------------
Total Investments (cost -- $104,906,064) 103.6% $114,536,960
Liabilities in Excess of Other Assets (3.6) (3,972,454)
----- ------------
Total Net Assets 100.0% $110,564,506
----- ------------
----- ------------
</TABLE>
MANAGED PORTFOLIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT AGENCY NOTES -- 1.0%
$ 4,810,000 Federal Home Loan Bank, 5.68%, 1/6/98
(cost -- $4,806,225) $ 4,806,225
------------
SHORT-TERM CORPORATE NOTES -- 27.3%
AUTOMOTIVE -- 7.3%
Ford Motor Credit Co.,
$17,670,000 5.71%, 1/5/98 $ 17,658,789
1,425,000 5.75%, 1/28/98 1,418,855
15,000,000 General Motors Acceptance Corp., 5.78%, 1/7/98 14,985,550
------------
34,063,194
------------
INSURANCE -- 1.0%
4,695,000 Prudential Funding Corp., 5.73%, 2/2/98 4,671,087
------------
MACHINERY/ENGINEERING -- 3.6%
17,000,000 Deere (John) Capital Corp., 5.55%, 2/4/98 16,910,892
------------
MISCELLANEOUS FINANCIAL SERVICES -- 11.9%
15,000,000 Associates Corp., N.A., 5.75%, 1/26/98 14,940,104
Household Finance Corp.,
3,790,000 5.80%, 1/12/98 3,783,283
4,952,000 5.85%, 1/12/98 4,943,149
Merrill Lynch & Co., Inc.,
2,980,000 5.84%, 1/15/98 2,973,232
13,020,000 5.88%, 1/15/98 12,990,228
15,770,000 Norwest Financial Inc., 5.72%, 2/2/98 15,689,818
------------
55,319,814
------------
RETAIL -- 2.6%
Sears Roebuck Acceptance Corp.,
5,095,000 5.88%, 1/22/98 5,077,524
7,135,000 5.90%, 1/22/98 7,110,444
------------
12,187,968
------------
TECHNOLOGY -- .9%
4,270,000 IBM Credit Corp., 5.55%, 2/2/98 4,248,934
------------
Total Short-Term Corporate Notes (cost -- $127,401,889) $127,401,889
------------
U.S. TREASURY NOTES AND BONDS -- .4%
$700,000 6.25%, 8/15/23 $ 721,000
630,000 7.875%, 4/15/98 634,234
297,500 7.875%, 8/15/01 318,045
------------
Total U.S. Treasury Notes and Bonds (cost -- $1,509,392) $ 1,673,279
------------
</TABLE>
* Non-income producing security.
A-3
<PAGE>
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C>
CONVERTIBLE PREFERRED STOCK -- .0%
RETAIL -- .0%
2,478 Venture Stores, Inc., $3.25 Conv. Pfd.
(cost -- $102,527) $ 26,948
------------
COMMON STOCKS -- 71.3%
AEROSPACE/DEFENSE -- 5.9%
250,000 Boeing Co. $ 12,234,375
155,000 Lockheed Martin Corp. 15,267,500
------------
27,501,875
------------
BANKING -- 12.5%
155,000 BankBoston Corp. 14,560,313
127,000 Citicorp 16,057,562
21,000 First Empire State Corp. 9,765,000
53,000 Wells Fargo & Co. 17,990,188
------------
58,373,063
------------
CHEMICALS -- 9.5%
50,000 Dow Chemical Co. 5,075,000
290,000 du Pont (E.I.) de Nemours & Co. 17,418,125
70,000 Hercules, Inc. 3,504,375
310,000 Monsanto Co. 13,020,000
200,000 Solutia, Inc. 5,337,500
------------
44,355,000
------------
CONGLOMERATES -- 1.5%
180,000 Tenneco, Inc. 7,110,000
------------
CONSUMER PRODUCTS -- 3.9%
325,200 Mattel, Inc. 12,113,700
150,000 Nike, Inc. 5,887,500
------------
18,001,200
------------
DRUGS & MEDICAL PRODUCTS -- 1.4%
130,000 Becton, Dickinson & Co. 6,500,000
------------
ENERGY -- .5%
70,000 Triton Energy Ltd.* 2,043,125
20,000 Union Pacific Resources Group, Inc. 485,000
------------
2,528,125
------------
FOOD SERVICES -- 6.6%
325,000 Diageo plc ADR 12,309,375
390,000 McDonald's Corp. 18,622,500
------------
30,931,875
------------
INSURANCE -- 3.8%
74,700 ACE Ltd. 7,208,550
138,600 EXEL Ltd. 8,783,775
15,400 Transamerica Corp. 1,640,100
------------
17,632,425
------------
MACHINERY/ENGINEERING -- 3.8%
370,000 Caterpillar, Inc. 17,968,125
------------
MEDIA/BROADCAST -- 4.0%
300,000 Time Warner, Inc. 18,600,000
------------
MISCELLANEOUS FINANCIAL SERVICES -- 8.4%
70,000 American Express Co. $ 6,247,500
130,000 Countrywide Credit Industries, Inc. 5,573,750
430,000 Federal Home Loan Mortgage Corp. 18,033,125
160,600 Federal National Mortgage Assoc. 9,164,237
------------
39,018,612
------------
PAPER PRODUCTS -- 2.1%
220,000 Champion International Corp. 9,968,750
------------
PRINTING/PUBLISHING -- .2%
25,000 Donnelley (R.R.) & Sons Co. 931,250
------------
REAL ESTATE -- .5%
1,399 Security Capital Group Inc. (Class A) * 2,209,763
------------
TECHNOLOGY -- 4.6%
75,000 Computer Associates International, Inc. 3,965,625
75,000 Intel Corp. 5,268,750
420,000 National Semiconductor Corp.* 10,893,750
60,000 Unitrode Corp. * 1,290,000
------------
21,418,125
------------
TELECOMMUNICATIONS -- 2.1%
346,420 Tele-Communications, Inc. (Class A) * 9,808,016
------------
Total Common Stocks (cost -- $260,773,590) $332,856,204
------------
Total Investments (cost -- $394,593,623) 100.0% $466,764,545
Other Assets in Excess of Liabilities 0.0 26,679
----- ------------
Total Net Assets 100.0% $466,791,224
----- ------------
----- ------------
</TABLE>
U.S. GOVERNMENT INCOME PORTFOLIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C>
U.S. TREASURY NOTES -- 48.7%
$ 300,000 5.75%, 8/15/03 $ 300,186
480,000 5.875%, 1/31/99 481,123
475,000 5.875%, 11/30/01 476,928
160,000 6.00%, 9/30/98 160,450
540,000 6.25%, 4/30/01 548,435
1,150,000 6.50%, 10/15/06 1,204,085
125,000 7.25%, 5/15/04 134,902
85,000 7.50%, 2/15/05 93,420
------------
Total U.S. Treasury Notes (cost -- $3,326,146) $ 3,399,529
------------
</TABLE>
* Non-income producing security.
A-4
<PAGE>
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST DECEMBER 31, 1997
- --------------------------------------------------------------------------------
SCHEDULES OF INVESTMENTS (continued)
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT AGENCY NOTES -- 32.8%
Federal Farm Credit Bank,
$ 20,000 5.58%, 2/11/98 $ 19,873
75,000 8.65%, 10/1/99 78,445
Federal Home Loan Bank,
345,000 6.90%, 2/7/07 363,437
100,000 8.09%, 12/28/04 111,547
155,000 8.60%, 8/25/99 161,756
Federal Home Loan Mortgage Corp.,
175,000 6.22%, 3/24/03 177,242
300,000 7.71%, 6/21/04 306,609
125,000 7.75%, 11/7/01 132,734
150,000 8.115%, 1/31/05 167,601
Federal National Mortgage Assoc.,
60,000 5.375%, 6/10/98 59,935
150,000 9.20%, 9/11/00 162,421
150,000 Private Export Funding Corp., 9.10%, 10/30/98 153,914
Student Loan Marketing Assoc.,
75,000 7.00%, 3/3/98 75,140
100,000 7.20%, 11/9/00 103,578
Tennessee Valley Authority,
150,000 6.00%, 11/1/00 150,587
65,000 8.375%, 10/1/99 67,701
------------
Total U.S. Government Agency Notes (cost -- $2,255,250) $ 2,292,520
------------
MORTGAGE-RELATED SECURITIES -- 10.6%
$ 278,913 Federal Home Loan Mortgage Corp., 6.00%, 9/1/12 $ 274,381
Federal National Mortgage Assoc.,
167,835 6.50%, 5/1/26 166,051
166,421 7.00%, 1/1/10 169,801
6,033 9.00%, 8/1/02 6,201
14,507 9.50%, 12/1/06 15,097
34,042 9.50%, 3/1/19 36,776
66,899 9.50%, 12/1/19 72,146
------------
Total Mortgage-Related Securities (cost -- $724,254) $ 740,453
------------
CORPORATE NOTES -- 6.7%
CONGLOMERATES -- 1.5%
$ 100,000 General Electric Capital Corp., 8.375%, 3/1/01 $ 106,372
------------
MISCELLANEOUS FINANCIAL SERVICES -- 5.2%
125,000 Associates Corp., N.A., 5.25%, 3/30/00 122,722
125,000 International Lease Finance Corp., 6.125%, 11/1/99 124,923
100,000 Lehman Brothers Holdings, Inc., 8.50%, 5/1/07 111,259
------------
358,904
------------
Total Corporate Notes (cost -- $452,401) $ 465,276
------------
Total Investments (cost -- $6,758,051) 98.8% $ 6,897,778
Other Assets in Excess of Liabilities 1.2 85,497
----- ------------
Total Net Assets 100.0% $ 6,983,275
----- ------------
----- ------------
</TABLE>
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT AGENCY NOTES -- 23.0%
$ 475,000 Federal Home Loan Bank, 5.78%, 1/8/98 $ 474,466
25,000 Federal Home Loan Mortgage Corp., 5.38%, 1/6/98 24,981
------------
Total U.S. Government Agency Notes (amortized cost -- $499,447) $ 499,447
------------
SHORT-TERM CORPORATE NOTES -- 77.6%
BANKING -- 22.8%
$150,000 Abbey National North America, 5.48%, 2/3/98 $ 149,246
160,000 Banque Nationale De Paris (NY), 5.56%, 1/5/98 159,901
184,000 Halifax plc, 5.55%, 1/5/98 183,887
------------
493,034
------------
ENTERTAINMENT -- 4.6%
100,000 Walt Disney Co., 5.72%, 1/13/98 99,809
------------
MACHINERY/ENGINEERING -- 4.6%
100,000 Deere (John) Capital Corp., 5.77%, 1/9/98 99,872
------------
MISCELLANEOUS FINANCIAL SERVICES -- 20.7%
100,000 Associates Corp., N.A., 5.78%, 1/5/98 99,936
100,000 Beneficial Corp., 5.65%, 1/8/98 99,890
100,000 Merrill Lynch & Co., Inc., 5.85%, 1/14/98 99,789
150,000 Morgan Stanley Dean Witter Discover, 5.51%, 1/15/98 149,678
------------
449,293
------------
SOVEREIGN -- 13.4%
180,000 Canadian Wheat Board, 5.45%, 1/6/98 179,864
110,000 Sweden (Kingdom of), 5.22%, 3/16/98 108,752
------------
288,616
------------
TELECOMMUNICATIONS -- 4.6%
100,000 American Telephone & Telegraph Co., 5.71%, 1/12/98 99,826
------------
TOBACCO/BEVERAGES/FOOD PRODUCTS -- 6.9%
150,000 Coca Cola Co., 5.44%, 1/22/98 149,524
------------
Total Short-Term Corporate Notes (amortized cost -- $1,679,974) $ 1,679,974
------------
Total Investments (amortized cost -- $2,179,421) 100.6% $ 2,179,421
Liabilities in Excess of Other Assets (0.6) (13,354)
----- ------------
Total Net Assets 100.0% $ 2,166,067
----- ------------
----- ------------
</TABLE>
See accompanying notes to financial statements.
A-5
<PAGE>
OCC ACCUMULATION TRUST
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
U.S. GOVERNMENT MONEY
EQUITY SMALL CAP MANAGED INCOME MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ------------ ---------------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (cost --
$20,962,136, $104,906,064,
$394,593,623, $2,179,421 and
$6,758,051, respectively)... $28,879,870 $114,536,960 $466,764,545 $6,897,778 $2,179,421
Cash.......................... 8,823 -- 30,991 1,486 7,664
Receivable from investments
sold........................ -- 1,419,920 -- -- --
Receivable from fund shares
sold........................ 17,071 101,168 349,124 5,740 --
Dividends receivable.......... 29,714 34,329 159,492 -- --
Interest receivable........... -- -- 36,006 98,362 --
Other assets.................. 240 357 2,020 238 151
----------- ------------ ------------ ---------------- ----------
Total Assets........ 28,935,718 116,092,734 467,342,178 7,003,604 2,187,236
----------- ------------ ------------ ---------------- ----------
LIABILITIES
Payable for investments
purchased................... -- 5,323,098 -- -- --
Payable for fund shares
redeemed.................... 75,053 62,271 103,403 3,121 4,917
Investment advisory fee
payable..................... 21,901 79,892 338,529 4,102 1,405
Due to custodian.............. -- 17,756 -- -- --
Other payables and accrued
expenses.................... 18,786 45,211 109,022 13,106 14,847
----------- ------------ ------------ ---------------- ----------
Total Liabilities... 115,740 5,528,228 550,954 20,329 21,169
----------- ------------ ------------ ---------------- ----------
Total Net Assets.... $28,819,978 $110,564,506 $466,791,224 $6,983,275 $2,166,067
----------- ------------ ------------ ---------------- ----------
----------- ------------ ------------ ---------------- ----------
COMPOSITION OF NET ASSETS
Par value ($.01 per share).... $ 7,892 $ 41,923 $ 110,147 $ 6,644 $ 21,663
Paid-in-capital in excess of
par......................... 19,247,103 96,160,907 374,290,916 6,839,414 2,144,595
Accumulated undistributed net
investment income........... 311,417 397,655 4,115,641 -- --
Accumulated net realized gain
(loss) on investments....... 1,335,832 4,333,125 16,103,598 (2,510) (191)
Net unrealized appreciation on
investments................. 7,917,734 9,630,896 72,170,922 139,727 --
----------- ------------ ------------ ---------------- ----------
Total Net Assets.... $28,819,978 $110,564,506 $466,791,224 $6,983,275 $2,166,067
----------- ------------ ------------ ---------------- ----------
----------- ------------ ------------ ---------------- ----------
Fund shares outstanding....... 789,233 4,192,273 11,014,702 664,374 2,166,257
----------- ------------ ------------ ---------------- ----------
Net asset value per share..... $ 36.52 $ 26.37 $ 42.38 $ 10.51 $ 1.00
----------- ------------ ------------ ---------------- ----------
----------- ------------ ------------ ---------------- ----------
</TABLE>
See accompanying notes to financial statements.
A-6
<PAGE>
OCC ACCUMULATION TRUST
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
U.S. GOVERNMENT MONEY
EQUITY SMALL CAP MANAGED INCOME MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ----------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign
withholding taxes of
$3,194, $2,271, $0, $0
and $0, respectively).... $ 326,208 $ 426,467 $ 3,032,861 $ -- $ --
Interest.................... 231,179 573,593 3,621,915 383,125 242,856
---------- ----------- ----------- --------------- ---------
Total investment income.. 557,387 1,000,060 6,654,776 383,125 242,856
---------- ----------- ----------- --------------- ---------
OPERATING EXPENSES
Investment advisory fees
(note 2A)................ 199,896 498,382 2,321,835 35,757 17,502
Custodian fees (note 1G).... 16,039 34,542 47,889 10,306 8,874
Transfer and dividend
disbursing agent fees.... 9,239 10,328 11,706 4,929 8,560
Audit fees.................. 8,978 10,100 15,700 9,600 9,600
Trustees' fees and
expenses................. 9,614 19,188 28,217 -- --
Reports and notices to
shareholders............. 2,138 9,571 28,817 750 767
Legal fees.................. 443 1,253 5,500 97 100
Miscellaneous............... 1,175 20,651 80,936 1,834 817
---------- ----------- ----------- --------------- ---------
Total operating
expenses............... 247,522 604,015 2,540,600 63,273 46,220
Less: Investment advisory
fees waived (note 2A).. -- -- -- (8,028) (3,123)
Less: Expenses offset
(note 1G).............. (1,552) (1,611) (1,465) (292) (359)
---------- ----------- ----------- --------------- ---------
Net operating
expenses............ 245,970 602,404 2,539,135 54,953 42,738
---------- ----------- ----------- --------------- ---------
Net investment income.. 311,417 397,656 4,115,641 328,172 200,118
---------- ----------- ----------- --------------- ---------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS -- NET
Net realized gain (loss) on
investments.............. 1,335,830 4,341,925 16,103,603 13,044 (178)
Net change in unrealized
appreciation
(depreciation) on
investments.............. 4,175,591 6,375,677 32,559,342 124,161 --
---------- ----------- ----------- --------------- ---------
Net realized gain
(loss) and change in
unrealized
appreciation
(depreciation) on
investments ....... 5,511,421 10,717,602 48,662,945 137,205 (178)
---------- ----------- ----------- --------------- ---------
Net increase in net assets
resulting from operations... $5,822,838 $11,115,258 $52,778,586 $ 465,377 $ 199,940
---------- ----------- ----------- --------------- ---------
---------- ----------- ----------- --------------- ---------
</TABLE>
See accompanying notes to financial statements.
A-7
<PAGE>
OCC ACCUMULATION TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EQUITY PORTFOLIO SMALL CAP PORTFOLIO MANAGED PORTFOLIO
------------------------ ------------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------ ------------------------- --------------------------
1997 1996 1997 1996 1997 1996
----------- ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income...................... $ 311,417 $ 188,895 $ 397,656 $ 226,925 $ 4,115,641 $ 2,161,819
Net realized gain (loss) on investments.... 1,335,830 672,433 4,341,925 1,679,412 16,103,603 6,639,637
Net change in unrealized appreciation
(depreciation) on investments............ 4,175,591 2,218,378 6,375,677 2,142,715 32,559,342 18,285,659
----------- ----------- ------------ ----------- ------------ ------------
Net increase in net assets resulting from
operations............................. 5,822,838 3,079,706 11,115,258 4,049,052 52,778,586 27,087,115
----------- ----------- ------------ ----------- ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................... (188,895) (111,781) (226,926) (211,870) (2,161,818) (1,378,070)
Net realized gains......................... (672,432) (223,969) (1,600,321) (544,700) (6,639,642) (878,874)
----------- ----------- ------------ ----------- ------------ ------------
Total dividends and distributions to
shareholders........................... (861,327) (335,750) (1,827,247) (756,570) (8,801,460) (2,256,944)
----------- ----------- ------------ ----------- ------------ ------------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................... 10,880,025 9,184,397 70,252,565 17,604,938 260,261,576 79,297,599
Proceeds from shares issued in connection
with the reorganization of the Bond
Portfolio (see note 1)................... -- -- -- -- -- --
Reinvestment of dividends and
distributions............................ 861,327 335,750 1,827,247 756,533 8,801,460 2,256,944
Cost of shares redeemed.................... (7,725,883) (1,457,087) (5,059,988) (3,401,674) (26,977,032) (24,844,767)
----------- ----------- ------------ ----------- ------------ ------------
Net increase (decrease) in net assets
from fund share transactions........... 4,015,469 8,063,060 67,019,824 14,959,797 242,086,004 56,709,776
----------- ----------- ------------ ----------- ------------ ------------
Total increase (decrease) in net
assets............................. 8,976,980 10,807,016 76,307,835 18,252,279 286,063,130 81,539,947
NET ASSETS
Beginning of year.......................... 19,842,998 9,035,982 34,256,671 16,004,392 180,728,094 99,188,147
----------- ----------- ------------ ----------- ------------ ------------
End of year (including undistributed net
investment income of $311,417 and
$188,895; $397,655 and $226,925;
$4,115,641 and $2,161,818; $0 and $0 and
$0 and $0, respectively)................. $28,819,978 $19,842,998 $110,564,506 $34,256,671 $466,791,224 $180,728,094
----------- ----------- ------------ ----------- ------------ ------------
----------- ----------- ------------ ----------- ------------ ------------
SHARES ISSUED AND REDEEMED
Issued..................................... 328,269 339,540 2,800,876 837,586 6,451,958 2,403,077
Shares issued in connection with the
reorganization of the Bond Portfolio (see
note 1).................................. -- -- -- -- -- --
Issued in reinvestment of dividends and
distributions............................ 28,807 13,029 83,857 38,520 243,943 73,016
Redeemed................................... (227,653) (53,448) (207,710) (164,530) (672,569) (775,472)
----------- ----------- ------------ ----------- ------------ ------------
Net increase (decrease).................. 129,423 299,121 2,677,023 711,576 6,023,332 1,700,621
----------- ----------- ------------ ----------- ------------ ------------
----------- ----------- ------------ ----------- ------------ ------------
<CAPTION>
U.S. GOVERNMENT
INCOME PORTFOLIO MONEY MARKET PORTFOLIO
----------------------- -------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- -------------------------
1997 1996 1997 1996
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income...................... $ 328,172 $ 130,053 $ 200,118 $ 181,416
Net realized gain (loss) on investments.... 13,044 (7,891) (178) (14)
Net change in unrealized appreciation
(depreciation) on investments............ 124,161 (26,424) -- --
----------- ---------- ------------ -----------
Net increase in net assets resulting from
operations............................. 465,377 95,738 199,940 181,402
----------- ---------- ------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income...................... (328,172) (130,053) (200,118) (181,416)
Net realized gains......................... (7,663) -- -- (46)
----------- ---------- ------------ -----------
Total dividends and distributions to
shareholders........................... (335,835) (130,053) (200,118) (181,462)
----------- ---------- ------------ -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................... 2,093,607 2,180,216 7,068,886 6,146,104
Proceeds from shares issued in connection
with the reorganization of the Bond
Portfolio (see note 1)................... 2,172,639 -- -- --
Reinvestment of dividends and
distributions............................ 335,840 130,663 200,008 182,704
Cost of shares redeemed.................... (1,170,351) (297,024) (10,381,691) (5,405,790)
----------- ---------- ------------ -----------
Net increase (decrease) in net assets
from fund share transactions........... 3,431,735 2,013,855 (3,112,797) 923,018
----------- ---------- ------------ -----------
Total increase (decrease) in net
assets............................. 3,561,277 1,979,540 (3,112,975) 922,958
NET ASSETS
Beginning of year.......................... 3,421,998 1,442,458 5,279,042 4,356,084
----------- ---------- ------------ -----------
End of year (including undistributed net
investment income of $311,417 and
$188,895; $397,655 and $226,925;
$4,115,641 and $2,161,818; $0 and $0 and
$0 and $0, respectively)................. $6,983,275 $3,421,998 $ 2,166,067 $5,279,042
----------- ---------- ------------ -----------
----------- ---------- ------------ -----------
SHARES ISSUED AND REDEEMED
Issued..................................... 202,361 209,939 7,068,886 6,146,104
Shares issued in connection with the
reorganization of the Bond Portfolio (see
note 1).................................. 212,587 -- -- --
Issued in reinvestment of dividends and
distributions............................ 32,289 12,589 200,008 182,704
Redeemed................................... (112,598) (28,592) (10,381,691) (5,405,790)
----------- ---------- ------------ -----------
Net increase (decrease).................. 334,639 193,936 (3,112,797) 923,018
----------- ---------- ------------ -----------
----------- ---------- ------------ -----------
</TABLE>
See accompanying notes to financial statements.
A-8
<PAGE>
OCC ACCUMULATION TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust (the 'Trust') was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end, management investment company.
The Equity Portfolio, the Small Cap Portfolio, the Managed Portfolio, the U.S.
Government Income Portfolio and the Money Market Portfolio (collectively, the
'Portfolios') are five of seven portfolios offered in the Trust. The
accompanying financial statements and notes thereto are those of the Portfolios.
The Trust is an investment vehicle for variable annuity and variable life
insurance contracts of various life insurance companies, and qualified pension
and retirement plans. Each portfolio is authorized to issue an unlimited number
of shares of beneficial interest at $.01 par value.
On February 26, 1997, the Securities and Exchange Commission approved an
Order of Substitution (the 'Order') of shares of the U.S. Government Income
Portfolio for shares of the OCC Accumulation Trust Bond Portfolio ('Bond
Portfolio'). Pursuant to the Order, the Bond Portfolio transferred all of its
net assets to shareholders of the Bond Portfolio which were exchanged for shares
of the U.S. Government Income Portfolio with a value equivalent to the value of
the net assets received by the U.S. Government Income Portfolio, including
unrealized depreciation of securities of $2,273. In connection with the Order,
the shareholders of the Bond Portfolio received 212,587 shares of the U.S.
Government Income Portfolio. Immediately prior to the Order, the aggregate net
assets of the U.S. Government Income Portfolio were $3,870,116.
On October 14, 1997, the shareholders of the Trust approved a new
investment advisory agreement with OpCap Advisors (the 'Adviser'). This
agreement was substantially similar to the existing agreement and became
effective on November 5, 1997. On November 4, 1997, PIMCO Advisors L.P. and its
affiliates, acquired a one-third managing general partner interest in
Oppenheimer Capital, whose subsidiary, OpCap Advisors, serves as Adviser to the
Trust. On November 30, 1997, Oppenheimer Capital merged with a subsidiary of
PIMCO Advisors and, as a result, Oppenheimer Capital became an indirect
wholly-owned subsidiary of PIMCO Advisors. On November 3, 1997, CIBC Wood Gundy
Securities Corp. acquired the business of Oppenheimer & Co., Inc., which is now
called CIBC Oppenheimer Corp. Accordingly, CIBC Oppenheimer Corp. is no longer
affiliated with OpCap Advisors or the Trust.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
The Money Market Portfolio: Portfolio securities are valued at amortized
cost, which approximates market value. The amortized cost method involves
valuing a security at cost on the date of purchase and thereafter assuming a
constant dollar amortization to maturity of the difference between the principal
amount due at maturity and the initial cost of the security. The Equity, Small
Cap, Managed and U.S. Government Income Portfolios: Investment securities, other
than debt securities, listed on a national securities exchange or traded in the
over-the-counter National Market System are valued each business day at the last
reported sale price; if there are no such reported sales, the securities are
valued at their last quoted bid price. Other securities traded over-the-counter
and not part of the National Market System are valued at the last quoted bid
price. Investment debt securities (other than short-term obligations) are valued
each business day by an independent pricing service (approved by the Board of
Trustees) using methods which include current market quotations from a major
market maker in the securities and trader-reviewed 'matrix' prices. Short-term
debt securities having a remaining maturity of sixty days or less are valued at
amortized cost or amortized value, which approximates market value. Any
securities or other assets for which market quotations are not readily available
are valued at their fair value as determined in good faith by the Board of
Trustees. The ability of issuers of debt instruments to meet their obligations
may be affected by economic developments in a specific industry or region.
A-9
<PAGE>
OCC ACCUMULATION TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(B) FEDERAL INCOME TAXES
It is the Trust's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable income to shareholders; accordingly, no Federal
income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
(D) DIVIDENDS AND DISTRIBUTIONS
The Equity, Small Cap and Managed Portfolios: Dividends and distributions
to shareholders from net investment income and net realized capital gains, if
any, are declared and paid at least annually. The U.S. Government Income and
Money Market Portfolios: Dividends from net investment income are declared daily
and paid monthly. Distributions from net realized capital gains, if any, are
declared and paid at least annually.
The Trust's portfolios record dividends and distributions to its
shareholders on the ex-dividend date. The amount of dividends and distributions
is determined in accordance with Federal income tax regulations, which may
differ from generally accepted accounting principles. These 'book-tax'
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their Federal income tax treatment;
temporary differences do not require reclassification. To the extent dividends
and/or distributions exceed current and accumulated earnings and profits for
Federal income tax purposes, they are reported as dividends and/or distributions
of paid-in-capital or tax return of capital. At December 31, 1997, the Trust's
portfolios did not have any permanent book-tax differences.
(E) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio based on its net
assets in relation to the total net assets of all applicable portfolios of the
Trust or on another reasonable basis.
(F) USE OF ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(G) EXPENSES OFFSET
The Portfolios benefit from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolios.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of each Portfolio's net assets as of
the close of business each day at the following annual rates: .80%
A-10
<PAGE>
OCC ACCUMULATION TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
for each of the Equity, Small Cap and Managed Portfolios on the first $400
million, .75% on the next $400 million and .70% thereafter; .60% for the U.S.
Government Income Portfolio and .40% for the Money Market Portfolio. The
Adviser has agreed to waive that portion of each advisory fee and to assume
any necessary expense to limit total operating expenses of each Portfolio to
1.00% (net of expenses offset) of average net assets on an annual basis.
(B) Total brokerage commissions paid by the Equity, Small Cap and Managed
Portfolios amounted to $21,025, $213,701 and $224,795, respectively, of which
CIBC Oppenheimer Corp. received $5,221, $76,787 and $82,229, respectively, for
the year ended December 31, 1997.
(3) PURCHASES AND SALES OF SECURITIES
For the year ended December 31, 1997, purchases and sales of investment
securities, other than short-term securities, were as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
EQUITY SMALL CAP MANAGED INCOME MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO*
---------- ----------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Purchases... $9,063,484 $94,834,620 $202,762,481 $8,217,249 $55,993,887
Sales....... 6,761,706 36,458,722 73,100,691 4,678,959 59,337,929
</TABLE>
- ------------------
* All short-term securities and maturities.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
At December 31, 1997, the composition of unrealized appreciation
(depreciation) on investment securities and the cost of investments for Federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
APPRECIATION (DEPRECIATION) NET TAX COST
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
Equity Portfolio..... $ 7,958,426 ($ 40,692) $ 7,917,734 $ 20,962,136
Small Cap Portfolio.. 11,747,701 (2,125,803) 9,621,898 104,915,602
Managed Portfolio.... 76,339,940 (4,169,018) 72,170,922 394,593,623
U.S. Government
Income Portfolio... 137,995 (779) 137,216 6,760,526
Money Market
Portfolio.......... -- -- -- 2,179,421
</TABLE>
(5) CAPITAL LOSS CARRY-FORWARDS
At December 31, 1997, the Money Market Portfolio's accumulated net realized
capital losses available as a reduction against future net realized capital
gains were $47 of which $14 will expire in 2004 and $33 will expire in 2005.
Capital losses incurred after October 31, 1997 are deemed to arise on the first
business day of the following tax year. During the fiscal year ended December
31, 1997, the Money Market Portfolio incurred and elected to defer $145 in net
capital losses. To the extent these capital loss carry-forwards are used to
offset future net capital gains, the gains offset will not be distributed to
shareholders. Additionally, the U.S. Government Income Portfolio utilized $6,203
of net capital loss carry-forward during the fiscal year ended December 31,
1997.
A-11
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS
-------------------------------------- -------------------------------------------
NET DISTRIBUTIONS
REALIZED TO TOTAL
AND TOTAL DIVIDENDS TO SHAREHOLDERS DIVIDENDS
NET ASSET UNREALIZED INCOME (LOSS) SHAREHOLDERS FROM NET AND
VALUE, NET GAIN (LOSS) FROM FROM NET REALIZED DISTRIBUTIONS
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT GAINS ON TO SHARE-
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS HOLDERS
--------- ---------- ----------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
EQUITY PORTFOLIO
Year Ended December 31, 1997...... $30.07 $0.39 $7.34 $7.73 ($0.28) ($1.00) ($ 1.28)
Year Ended December 31, 1996...... 25.05 0.21 5.52 5.73 (0.24) (0.47) (0.71)
Year Ended December 31, 1995...... 18.12 0.31 6.71 7.02 (0.09) -- (0.09)
September 16, 1994 (3) to December
31, 1994......................... 18.57 0.09 (0.54) (0.45) -- -- --
<CAPTION>
RATIOS
---------------------------------
RATIO
OF NET
OPERATING RATIO
EXPENSES OF NET
NET NET TO INVESTMENT
ASSET ASSETS, AVERAGE INCOME
VALUE END OF NET TO PORTFOLIO AVERAGE
END OF TOTAL PERIOD ASSETS AVERAGE TURNOVER COMMISSION
PERIOD RETURN* (000'S) (5) NET ASSETS RATE RATE
------ ------- -------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
EQUITY PORTFOLIO
Year Ended December 31, 1997...... $36.52 26.6% $28,820 0.99%(2) 1.25%(2) 32% $0.0557
Year Ended December 31, 1996...... 30.07 23.4% 19,843 0.93%(1) 1.29%(1) 36% 0.0588
Year Ended December 31, 1995...... 25.05 38.9% 9,036 0.72%(1) 1.74%(1) 31% --
September 16, 1994 (3) to December
31, 1994......................... 18.12 (2.4%) 4,281 0.72%(1,4) 1.80%(1,4) 6% --
</TABLE>
(1) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.05% and 1.15%, respectively, for the
year ended December 31, 1996, 1.26% and 1.20%, respectively, for the year
ended December 31, 1995 and 2.09% and 0.43%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS
-------------------------------------- -------------------------------------------
NET DISTRIBUTIONS
REALIZED TO TOTAL
AND TOTAL DIVIDENDS TO SHAREHOLDERS DIVIDENDS
NET ASSET UNREALIZED INCOME (LOSS) SHAREHOLDERS FROM NET AND
VALUE, NET GAIN (LOSS) FROM FROM NET REALIZED DISTRIBUTIONS
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT GAINS ON TO SHARE-
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS HOLDERS
--------- ---------- ----------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
SMALL CAP PORTFOLIO
Year Ended December 31, 1997...... $22.61 $0.08 $4.73 $4.81 ($0.13) ($0.92) ($ 1.05)
Year Ended December 31, 1996...... 19.91 0.14 3.45 3.59 (0.25) (0.64) (0.89)
Year Ended December 31, 1995...... 17.38 0.26 2.37 2.63 (0.05) (0.05) (0.10)
September 16, 1994 (3) to December
31, 1994......................... 17.49 0.06 (0.17) (0.11) -- -- --
<CAPTION>
RATIOS
---------------------------------
RATIO
OF NET
OPERATING RATIO
EXPENSES OF NET
NET NET TO INVESTMENT
ASSET ASSETS, AVERAGE INCOME
VALUE END OF NET TO PORTFOLIO AVERAGE
END OF TOTAL PERIOD ASSETS AVERAGE TURNOVER COMMISSION
PERIOD RETURN* (000'S) (5) NET ASSETS RATE RATE
------ ------- -------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SMALL CAP PORTFOLIO
Year Ended December 31, 1997...... $26.37 22.2% $110,565 0.97%(2) 0.64%(2) 68% $0.0549
Year Ended December 31, 1996...... 22.61 18.7% 34,257 0.93%(1) 1.03%(1) 50% 0.0493
Year Ended December 31, 1995...... 19.91 15.2% 16,004 0.74%(1) 1.75%(1) 69% --
September 16, 1994 (3) to December
31, 1994......................... 17.38 (0.6%) 9,210 0.74%(1,4) 1.22%(1,4) 32% --
</TABLE>
(1) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.01% and 0.92%, respectively, for the
year ended December 31, 1996, 0.99% and 1.50%, respectively, for the year
ended December 31, 1995 and 1.64% and 0.32%, annualized, respectively, for
the period September 16, 1994 (commencement of operations) to December 31,
1994.
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS
-------------------------------------- -------------------------------------------
NET DISTRIBUTIONS
REALIZED TO TOTAL
AND TOTAL DIVIDENDS TO SHAREHOLDERS DIVIDENDS
NET ASSET UNREALIZED INCOME (LOSS) SHAREHOLDERS FROM NET AND
VALUE, NET GAIN (LOSS) FROM FROM NET REALIZED DISTRIBUTIONS
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT GAINS ON TO SHARE-
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS HOLDERS
--------- ---------- ----------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
MANAGED PORTFOLIO
Year Ended December 31, 1997...... $36.21 $0.34 $7.45 $7.79 ($0.40) ($1.22) ($ 1.62)
Year Ended December 31, 1996...... 30.14 0.43 6.31 6.74 (0.41) (0.26) (0.67)
Year Ended December 31, 1995...... 20.83 0.42 9.02 9.44 (0.13) -- (0.13)
September 16, 1994 (3) to December
31, 1994......................... 21.80 0.14 (1.11) (0.97) -- -- --
<CAPTION>
RATIOS
---------------------------------
RATIO
OF NET
OPERATING RATIO
EXPENSES OF NET
NET NET TO INVESTMENT
ASSET ASSETS, AVERAGE INCOME
VALUE END OF NET TO PORTFOLIO AVERAGE
END OF TOTAL PERIOD ASSETS AVERAGE TURNOVER COMMISSION
PERIOD RETURN* (000'S) (5) NET ASSETS RATE RATE
------ ------- -------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
MANAGED PORTFOLIO
Year Ended December 31, 1997...... $42.38 22.3% $466,791 0.87%(2) 1.42%(2) 32% $0.0571
Year Ended December 31, 1996...... 36.21 22.8% 180,728 0.84%(1) 1.66%(1) 27% 0.0592
Year Ended December 31, 1995...... 30.14 45.6% 99,188 0.66%(1) 1.85%(1) 22% --
September 16, 1994 (3) to December
31, 1994......................... 20.83 (4.4%) 54,943 0.66%(1,4) 2.34%(1,4) 8% --
</TABLE>
(1) During the periods noted above, the Adviser waived a portion of its fees. If
such waivers had not been in effect, the ratios of net operating expenses to
average net assets and the ratios of net investment income to average net
assets would have been 0.85% and 1.65%, respectively, for the year ended
December 31, 1996, 0.74% and 1.77%, respectively, for the year ended
December 31, 1995 and 0.96% and 2.04%, annualized, respectively, for the
period September 16, 1994 (commencement of operations) to December 31, 1994.
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS
-------------------------------------- -------------------------------------------
NET DISTRIBUTIONS
REALIZED TO TOTAL
AND TOTAL DIVIDENDS TO SHAREHOLDERS DIVIDENDS
NET ASSET UNREALIZED INCOME (LOSS) SHAREHOLDERS FROM NET AND
VALUE, NET GAIN (LOSS) FROM FROM NET REALIZED DISTRIBUTIONS
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT GAINS ON TO SHARE-
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS HOLDERS
--------- ---------- ----------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT INCOME PORTFOLIO
Year Ended December 31, 1997...... $10.38 $0.57 $0.14 $0.71 ($0.57) ($0.01) ($ 0.58)
Year Ended December 31, 1996...... 10.62 0.55 (0.24) 0.31 (0.55) -- (0.55)
January 3, 1995 (3) to December
31, 1995......................... 10.00 0.60 0.68 1.28 (0.60) (0.06) (0.66)
<CAPTION>
RATIOS
---------------------------------
RATIO
OF NET
OPERATING RATIO
EXPENSES OF NET
NET NET TO INVESTMENT
ASSET ASSETS, AVERAGE INCOME
VALUE END OF NET TO PORTFOLIO AVERAGE
END OF TOTAL PERIOD ASSETS AVERAGE TURNOVER COMMISSION
PERIOD RETURN* (000'S) (5) NET ASSETS RATE RATE
------ ------- -------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT INCOME PORTFOLIO
Year Ended December 31, 1997...... $10.51 7.0% $6,983 0.93%(1,2) 5.51%(1,2) 80% --
Year Ended December 31, 1996...... 10.38 3.0% 3,422 0.96%(1) 5.27%(1) 31% --
January 3, 1995 (3) to December
31, 1995......................... 10.62 13.1% 1,442 0.75%(1,4) 5.75%(1,4) 65% --
</TABLE>
(1) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.06% and 5.37%, respectively, for the
year ended December 31, 1997, 2.34% and 3.87%, respectively, for the year
ended December 31, 1996 and 4.73% and 1.77%, annualized, respectively, for
the period January 3, 1995 (commencement of operations) to December 31,
1995.
<TABLE>
<CAPTION>
INCOME FROM DIVIDENDS AND
INVESTMENT OPERATIONS DISTRIBUTIONS
-------------------------------------- -------------------------------------------
NET DISTRIBUTIONS
REALIZED TO TOTAL
AND TOTAL DIVIDENDS TO SHAREHOLDERS DIVIDENDS
NET ASSET UNREALIZED INCOME (LOSS) SHAREHOLDERS FROM NET AND
VALUE, NET GAIN (LOSS) FROM FROM NET REALIZED DISTRIBUTIONS
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT GAINS ON TO SHARE-
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS HOLDERS
--------- ---------- ----------- ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO
Year Ended December 31, 1997...... $1.00 $0.05 ($0.00) $0.05 ($0.05) -- ($ 0.05)
Year Ended December 31, 1996...... 1.00 0.04 (0.00) 0.04 (0.04) ($0.00) (0.04)
Year Ended December 31, 1995...... 1.00 0.05 0.00 0.05 (0.05) -- (0.05)
September 16, 1994 (3) to December
31, 1994......................... 1.00 0.01 -- 0.01 (0.01) -- (0.01)
<CAPTION>
RATIOS
---------------------------------
RATIO
OF NET
OPERATING RATIO
EXPENSES OF NET
NET NET TO INVESTMENT
ASSET ASSETS, AVERAGE INCOME
VALUE END OF NET TO PORTFOLIO AVERAGE
END OF TOTAL PERIOD ASSETS AVERAGE TURNOVER COMMISSION
PERIOD RETURN* (000'S) (5) NET ASSETS RATE RATE
------ ------- -------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO
Year Ended December 31, 1997...... $1.00 4.7% $2,166 0.98%(1,2) 4.57%(1,2) -- --
Year Ended December 31, 1996...... 1.00 4.5% 5,279 1.01%(1) 4.43%(1) -- --
Year Ended December 31, 1995...... 1.00 5.1% 4,356 1.00%(1) 4.94%(1) -- --
September 16, 1994 (3) to December
31, 1994......................... 1.00 1.2% 3,520 1.00%(1,4) 4.13%(1,4) -- --
</TABLE>
(1) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income to
average net assets would have been 1.06% and 4.50%, respectively, for the
year ended December 31, 1997, 1.30% and 4.13%, respectively, for the year
ended December 31, 1996, 1.14% and 4.80%, respectively, for the year ended
December 31, 1995 and 2.03% and 3.10%, annualized, respectively, for the
period September 16, 1994 (commencement of operations) to December 31, 1994.
- ------------------
(2) Average net assets for the year ended December 31, 1997 were $24,986,972,
$62,297,759, $290,421,930, $5,959,450 and $4,375,569 for the Equity, Small
Cap, Managed, U.S. Government Income and Money Market Portfolios,
respectively.
(3) Commencement of operations.
(4) Annualized.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank (See
note 1G in Notes to Financial Statements).
* Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
A-12
<PAGE>
Report of Independent Accountants
To the Shareholders and Trustees of
OCC Accumulation Trust
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Equity Portfolio, Small Cap
Portfolio, Managed Portfolio, U.S. Government Income Portfolio and Money Market
Portfolio, (five of the seven portfolios constituting OCC Accumulation Trust,
hereafter referred to as the "Trust") at December 31, 1997, the results of each
of their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1997 by
correspondence with the custodian and brokers and the application of alternative
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
February 11, 1998
A-13
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------- ------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY NOTES - 4.6%
Federal Farm Credit Bank,
$ 375,000 5.58%, 2/11/98..................................................................... $ 372,617
810,000 5.67%, 1/6/98...................................................................... 809,362
------------
Total U.S. Government Agency Notes (cost - $1,181,979)............................. $ 1,181,979
------------
CORPORATE NOTES - .3%
UNITED KINGDOM - .3%
COMPUTER SERVICES - .3%
Viglen Technology plc
(pounds)42,380 6.75%, 12/1/00..................................................................... $ 68,232
(pounds)11,180 6.9875%, 12/1/01................................................................... 18,363
------------
Total Corporate Notes (cost - $0).................................................. $ 86,595
------------
<CAPTION>
SHARES
- -------------
<S> <C> <C>
COMMON STOCKS - 92.2%
AUSTRALIA - .9%
BANKING - .3%
9,200 Macquarie Bank Ltd................................................................. $ 71,042
------------
ENERGY - .4%
37,328 Novus Petroleum Ltd................................................................ 97,314
------------
PAPER PRODUCTS - .2%
17,137 WMC Ltd............................................................................ 59,754
------------
Total Australian Common Stocks..................................................... 228,110
------------
BERMUDA - 4.0%
INSURANCE - 4.0%
10,800 ACE Ltd............................................................................ 1,042,200
------------
BRAZIL - 2.1%
FOOD SERVICES - .4%
5,000 Bompreco SA Supermercado GDR....................................................... 92,250
------------
PAPER PRODUCTS - .3%
5,600 Aracruz Celulose SA ADR............................................................ 79,100
------------
</TABLE>
A-14
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ------------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
BRAZIL (CONTINUED)
TELECOMMUNICATIONS - 1.1%
3,600 Ericsson Telecomunicacoes SA*...................................................... $ 115,479
1,400 Telecomunicacoes Brasileiras....................................................... 163,013
------------
278,492
------------
TEXTILES/APPAREL - .3%
250 Compahnia de Tecidos Norte de Minas-Coteminas*..................................... 89,602
210 Encorpar*+......................................................................... 163
------------
89,765
------------
Total Brazilian Common Stocks...................................................... 539,607
------------
CANADA - 3.3%
ENERGY - 1.5%
5,200 PanCanadian Petroleum Ltd.......................................................... 82,782
7,500 Precision Drilling Corp.*.......................................................... 180,540
3,600 Suncor, Inc........................................................................ 123,942
------------
387,264
------------
ENTERTAINMENT - .4%
5,000 Imax Corp.*........................................................................ 108,464
------------
MANUFACTURING - .4%
5,100 Bombardier, Inc.................................................................... 104,923
------------
PRINTING/PUBLISHING - .5%
4,550 Thomson Corp....................................................................... 122,581
------------
SECURITY/INVESTIGATION - .5%
5,800 Unican Security Systems Ltd........................................................ 127,035
------------
Total Canadian Common Stocks....................................................... 850,267
------------
CHILE - .2%
CONGLOMERATES - .2%
5,500 Quinenco SA ADR*................................................................... 63,250
------------
CZECH REPUBLIC - .3%
MISCELLANEOUS FINANCIAL SERVICES - .3%
2,000 CKD Praha Holding AS*.............................................................. 66,501
------------
FINLAND - 1.3%
TELECOMMUNICATIONS - 1.3%
4,700 Oy Nokia AB........................................................................ 336,272
------------
+ Preferred Stock
</TABLE>
A-15
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ------------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FRANCE - 5.3%
ELECTRONICS - 1.2%
500 Le Carbone Lorraine................................................................ $ 156,185
2,621 Schneider SA....................................................................... 142,318
------------
298,503
------------
ENERGY - .6%
1,500 Total SA........................................................................... 163,247
------------
INDUSTRIAL MATERIALS - .5%
8,300 Usinor............................................................................. 119,842
------------
INSURANCE - .8%
2,800 AXA................................................................................ 216,659
------------
MANUFACTURING - .6%
3,156 Michelin (CGDE).................................................................... 158,888
------------
POWER/UTILITIES - .6%
1,149 Compagnie Generale des Eaux........................................................ 160,366
------------
TECHNOLOGY - .6%
2,400 SGS-Thomson Microelectronics NV*................................................... 148,542
------------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .4%
630 Groupe Danone...................................................................... 112,528
------------
Total French Common Stocks......................................................... 1,378,575
------------
GERMANY - 6.2%
BANKING - .7%
2,850 Bayerishe Vereinsbank AG........................................................... 186,467
------------
BUILDING & CONSTRUCTION - .6%
6,250 Tarkett AG......................................................................... 144,181
------------
CHEMICALS - .6%
1,300 SGL Carbon AG...................................................................... 167,653
------------
COMPUTER SERVICES - 1.8%
1,500 SAP AG............................................................................. 455,683
------------
CONSUMER PRODUCTS - .9%
1,700 Adidas AG.......................................................................... 223,586
------------
DRUGS & MEDICAL PRODUCTS - .3%
1,800 Gehe AG............................................................................ 90,053
------------
INSURANCE - .6%
175 Koelnische Rueckversicherungs AG................................................... 160,510
------------
RETAIL - .7%
4,800 Metro AG........................................................................... 172,100
------------
Total German Common Stocks....................................................... 1,600,233
------------
</TABLE>
A-16
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ------------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
HONG KONG - 1.2%
BANKING - .2%
116,000 Manhattan Credit Card Co., Ltd..................................................... $ 40,792
------------
ELECTRICAL ENGINEERING - .4%
27,000 Hong Kong Electric Holdings Ltd.................................................... 102,613
------------
INDUSTRIAL MATERIALS - .6%
14,000 Hutchison Whampoa Ltd.............................................................. 87,805
35,000 Yue Yuen Industrial Holdings....................................................... 74,074
------------
161,879
------------
Total Hong Kong Common Stocks...................................................... 305,284
------------
HUNGARY - 1.0%
CONGLOMERATES - .1%
6,650 Benpres Holdings Corp.* GDR........................................................ 18,786
3,800 Benpres Holdings Corp.* GDR Reg. S................................................. 9,044
------------
27,830
------------
DRUGS & MEDICAL PRODUCTS - .9%
500 Gedeon Richter Ltd., GDR........................................................... 58,125
500 Gedeon Richter Ltd., GDR Reg. S.................................................... 57,125
1,050 Gedeon Richter Ltd., GDS........................................................... 122,063
------------
237,313
------------
Total Hungarian Common Stocks...................................................... 265,143
------------
ITALY - .9%
RETAIL - .9%
33,000 La Rinascente SpA*................................................................. 246,241
------------
JAPAN - 7.9%
AUTOMOTIVE - .9%
15,000 Calsonic Corp...................................................................... 58,589
5,000 Honda Motor Co., Ltd............................................................... 183,427
------------
242,016
------------
BANKING - .2%
62,000 Yasuda Trust & Banking............................................................. 61,729
------------
BUILDING & CONSTRUCTION - .2%
3,000 Sho-Bond Corp...................................................................... 54,224
------------
</TABLE>
A-17
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ------------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
JAPAN (CONTINUED)
CHEMICALS - .9%
32,000 Dainippon Ink & Chemicals, Inc..................................................... $ 80,876
5,000 Shin-Etsu Chemical Co. Ltd......................................................... 95,351
53,000 Showa Denko K.K.................................................................... 46,274
------------
222,501
------------
CONGLOMERATES - .1%
4,000 Inaba Denkisangyo Co. Ltd.......................................................... 33,392
------------
CONSUMER PRODUCTS - 1.0%
5,000 Canon, Inc......................................................................... 116,413
26,000 Minolta Co. Ltd.................................................................... 145,960
------------
262,373
------------
ELECTRICAL ENGINEERING - .0%
100 Kinden Corp........................................................................ 1,065
------------
ELECTRONICS - 2.1%
2,000 Kyocera Corp....................................................................... 90,679
4,000 Omron Corp......................................................................... 62,495
1,000 Rohm Co............................................................................ 101,861
10,000 Sodick Co.*........................................................................ 28,644
3,000 Sony Corp.......................................................................... 266,524
------------
550,203
------------
INSURANCE - .1%
9,000 Fuji Fire & Marine Insurance Co. Ltd............................................... 18,128
------------
METALS & MINING - .2%
5,000 Toho Titanium*..................................................................... 42,123
------------
MISCELLANEOUS FINANCIAL SERVICES - 1.4%
1,300 Acom Co............................................................................ 71,686
2,000 Orix Corp.......................................................................... 139,389
500 Shohkoh Fund & Co. Ltd............................................................. 152,408
------------
363,483
------------
RETAIL - .5%
1,200 Circle K Co. Ltd................................................................... 57,440
1,000 Ryohin Keikaku Co. Ltd............................................................. 65,865
------------
123,305
------------
TOBACCO/BEVERAGES/FOOD PRODUCTS - .3%
6,000 Mikuni Coca-Cola Bottling Co....................................................... 74,902
------------
Total Japanese Common Stocks....................................................... 2,049,444
------------
</TABLE>
A-18
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ------------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
MEXICO - 1.1%
BUILDING & CONSTRUCTION - .6%
26,000 Corporacion GEO, SA de CV*......................................................... $ 159,470
------------
POWER/UTILITY - .5%
66,900 Grupo Elektra, SA de CV............................................................ 117,876
------------
Total Mexican Common Stocks........................................................ 277,346
------------
NETHERLANDS - 2.3%
MISCELLANEOUS FINANCIAL SERVICES - .5%
3,086 ING Groep NV....................................................................... 129,975
------------
PRINTING/PUBLISHING - 1.5%
7,250 Ver Ned Uitgevers NV............................................................... 204,522
1,290 Wolters Kluwer NV.................................................................. 166,622
------------
371,144
------------
PUBLIC SERVICES - .3%
4,580 Vedior NV.......................................................................... 82,445
------------
Total Netherlands Common Stocks.................................................... 583,564
------------
NEW ZEALAND - .4%
BUILDING & CONSTRUCTION - .2%
28,033 Fletcher Challenge Ltd............................................................. 57,296
------------
FOOD SERVICES - .2%
160,392 AFFCO Holdings Ltd................................................................. 35,390
------------
Total New Zealand Common Stocks.................................................... 92,686
------------
NORWAY - .6%
ENERGY - .6%
8,400 Saga Petroleum ASA................................................................. 144,439
------------
POLAND - .5%
BANKING - .5%
7,800 Bank Handlowy W. Warszawie SA GDR*................................................. 103,350
2,500 Bank Handlowy W. Warszawie*........................................................ 31,915
------------
Total Polish Common Stocks......................................................... 135,265
------------
SPAIN - 1.9%
ELECTRICAL ENGINEERING - .6%
9,000 Endesa SA*......................................................................... 159,797
------------
ENERGY - .5%
2,900 Repsol SA.......................................................................... 123,728
------------
MANUFACTURING - .4%
2,600 Vidrala SA......................................................................... 116,219
------------
</TABLE>
A-19
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ------------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
SPAIN (CONTINUED)
RETAIL - .4%
5,000 Aldeasa SA*........................................................................ $ 106,006
------------
Total Spanish Common Stocks........................................................ 505,750
------------
SWEDEN - 3.9%
APPLIANCE & HOUSEHOLD DURABLES - .4%
9,900 Munters AB......................................................................... 85,410
------------
BANKING - .7%
32,900 Norbanken AB*...................................................................... 186,049
------------
DRUGS & MEDICAL PRODUCTS - .5%
8,000 ASTRA AB........................................................................... 138,541
------------
ELECTRONICS - .5%
2,000 Electrolux AB...................................................................... 138,793
------------
MACHINERY/ENGINEERING - 1.3%
11,000 ABB AB............................................................................. 130,228
6,900 Atlas Copco AB..................................................................... 205,960
------------
336,188
------------
PAPER PRODUCTS - .5%
5,100 AssiDoman AB....................................................................... 129,107
------------
Total Swedish Common Stocks........................................................ 1,014,088
------------
SWITZERLAND - 3.4%
BANKING - .9%
1,600 CS Holding AG...................................................................... 247,468
------------
BUILDING & CONSTRUCTION - .3%
100 Holderbank Financiere Glaris AG.................................................... 81,577
------------
DRUGS & MEDICAL PRODUCTS - 2.2%
145 Ares-Serono Group.................................................................. 239,153
200 NOVARTIS AG*....................................................................... 324,391
------------
563,544
------------
Total Swiss Common Stocks.......................................................... 892,589
------------
UNITED KINGDOM - 5.5%
AUTOMOTIVE - .3%
20,263 LucasVarity plc*................................................................... 71,556
------------
COMPUTER SERVICES - .1%
52,000 Viglen Technology plc*............................................................. 33,310
------------
CONSUMER PRODUCTS - .9%
28,000 Unilever plc....................................................................... 240,850
------------
</TABLE>
A-20
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ------------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
UNITED KINGDOM (CONTINUED)
DRUGS & MEDICAL PRODUCTS - 1.0%
25,088 SmithKline Beecham plc............................................................. $ 258,574
------------
ELECTRONICS - .8%
10,900 Siebe plc.......................................................................... 213,944
------------
METALS & MINING - .5%
23,636 Antofagasta Holdings plc........................................................... 126,172
------------
MISCELLANEOUS FINANCIAL SERVICES - 1.0%
18,447 Lloyds TSB Group plc............................................................... 239,988
------------
RETAIL - .9%
13,307 Dixon Group plc.................................................................... 133,545
18,000 Safeway plc........................................................................ 101,408
------------
234,953
------------
Total United Kingdom Common Stocks................................................. 1,419,347
------------
UNITED STATES - 38.0%
AEROSPACE/DEFENSE - 5.1%
13,000 Boeing Co.......................................................................... 636,188
7,000 Lockheed Martin Corp............................................................... 689,500
------------
1,325,688
------------
BANKING - 7.6%
7,500 Citicorp........................................................................... 948,281
3,000 Wells Fargo & Co................................................................... 1,018,313
------------
1,966,594
------------
CHEMICALS - 5.1%
18,000 du Pont (E.I.) de Nemours & Co..................................................... 1,081,125
5,000 Monsanto Co........................................................................ 210,000
1,000 Solutia, Inc....................................................................... 26,687
------------
1,317,812
------------
CONSUMER PRODUCTS - 1.6%
11,000 Mattel, Inc........................................................................ 409,750
------------
DRUGS & MEDICAL PRODUCTS - 1.6%
8,000 Becton, Dickinson & Co............................................................. 400,000
------------
FOOD SERVICES - 4.5%
24,500 McDonald's Corp.................................................................... 1,169,875
------------
MACHINERY/ENGINEERING - 3.4%
18,000 Caterpillar, Inc................................................................... 874,125
------------
MEDIA/BROADCAST - 1.4%
6,000 Time Warner, Inc................................................................... 372,000
------------
</TABLE>
A-21
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- ------------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
MISCELLANEOUS FINANCIAL SERVICES - 3.1%
19,000 Federal Home Loan Mortgage Corp.................................................... $ 796,812
------------
PAPER PRODUCTS - 1.3%
7,500 Champion International, Inc........................................................ 339,844
------------
TECHNOLOGY - 1.2%
12,000 National Semiconductor Corp.*...................................................... 311,250
------------
TELECOMMUNICATIONS - 2.1%
1,300 Loral Space & Communications Ltd.*................................................. 27,869
18,000 TCI Ventures Group (Class A)*...................................................... 509,625
------------
537,494
------------
</TABLE>
<TABLE>
<S> <C> <C>
Total United States Common Stocks..................................... 9,821,244
------------
Total Common Stocks (cost - $21,120,277).............................. $ 23,857,445
------------
Total Investments (cost - $22,302,256)................................. 97.1% $ 25,126,019
Other Assets in Excess of Liabilities.................................. 2.9 747,609
----- ------------
Total Net Assets....................................................... 100.0% $ 25,873,628
----- ------------
----- ------------
</TABLE>
- ------------------------
*Non-income producing security.
See accompanying notes to financial statements.
A-22
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost -- $22,302,256).............................................................. $ 25,126,019
Cash..................................................................................................... 4,326
Foreign currencies (cost -- $683,398).................................................................... 679,966
Receivable from investments sold......................................................................... 69,944
Receivable from fund shares sold......................................................................... 17,613
Dividends receivable..................................................................................... 11,202
Foreign withholding taxes reclaimable.................................................................... 7,973
Interest receivable...................................................................................... 325
Other assets............................................................................................. 2,573
-------------
Total Assets........................................................................................... 25,919,941
-------------
LIABILITIES
Investment advisory fee payable.......................................................................... 20,112
Foreign withholding taxes payable........................................................................ 976
Payable for fund shares redeemed......................................................................... 486
Other payables and accrued expenses...................................................................... 24,739
-------------
Total Liabilities...................................................................................... 46,313
-------------
Total Net Assets....................................................................................... $ 25,873,628
-------------
-------------
COMPOSITION OF NET ASSETS
Par value ($.01 per share)............................................................................... $ 18,065
Paid-in-capital in excess of par......................................................................... 23,081,904
Accumulated distribution in excess of net investment income.............................................. (49,195)
Net unrealized appreciation on investments and translation of other assets and
liabilities denominated in foreign currencies.......................................................... 2,822,854
-------------
Total Net Assets....................................................................................... $ 25,873,628
-------------
-------------
Fund shares outstanding.................................................................................. 1,806,526
-------------
Net asset value per share................................................................................ $ 14.32
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
A-23
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $20,917)................................................. $ 272,348
Interest................................................................................................ 105,688
----------
Total investment income.............................................................................. 378,036
----------
OPERATING EXPENSES
Investment advisory fees (note 2A)...................................................................... 184,504
Custodian fees (note 1H)................................................................................ 59,554
Audit fees.............................................................................................. 11,500
Transfer and dividend disbursing agent fees............................................................. 9,217
Trustees' fees and expenses............................................................................. 8,750
Reports and notices to shareholders..................................................................... 2,315
Legal fees.............................................................................................. 450
Miscellaneous........................................................................................... 597
----------
Total operating expenses............................................................................. 276,887
Less: Investment advisory fees waived (note 2A)...................................................... (2,537)
Less: Expenses offset (note 1H)...................................................................... (1,196)
----------
Net operating expenses............................................................................. 273,154
----------
Net investment income.............................................................................. 104,882
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS -- NET
Net realized gain on investments........................................................................ 1,180,309
Net realized loss on foreign currency transactions...................................................... (31,367)
Net change in unrealized appreciation (depreciation) on investments and translation of other assets and
liabilities denominated in foreign currencies........................................................ 1,432,604
----------
Net realized gain and change in unrealized appreciation (depreciation) on investments and translation
of other assets and liabilities denominated in foreign currencies................................... 2,581,546
----------
Net increase in net assets resulting from operations...................................................... $2,686,428
----------
----------
</TABLE>
See accompanying notes to financial statements.
A-24
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATIONS
Net investment income.................................................................... $ 104,882 $ 73,364
Net realized gain on investments......................................................... 1,180,309 85,039
Net realized loss on foreign currency transactions....................................... (31,367) (6,772)
Net change in unrealized appreciation (depreciation) on investments and translation of
other assets and liabilities denominated in foreign currencies......................... 1,432,604 1,247,855
----------- -----------
Net increase in net assets resulting from operations................................ 2,686,428 1,399,486
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.................................................................... (74,889) (60,776)
In excess of net investment income....................................................... (49,195) --
Net realized gains on investments........................................................ (1,184,153) (89,998)
----------- -----------
Total dividends and distributions to shareholders................................... (1,308,237) (150,774)
----------- -----------
FUND SHARE TRANSACTIONS
Net proceeds from sales.................................................................. 10,888,674 16,110,547
Reinvestment of dividends and distributions.............................................. 1,308,238 150,774
Cost of shares redeemed.................................................................. (4,673,963) (3,428,866)
----------- -----------
Net increase in net assets from fund share transactions............................. 7,522,949 12,832,455
----------- -----------
Total increase in net assets................................................... 8,901,140 14,081,167
NET ASSETS
Beginning of year........................................................................ 16,972,488 2,891,321
----------- -----------
End of year (including accumulated distribution in excess of net investment income of
($49,195) and undistributed net investment income of $2,107, respectively)............. $25,873,628 $16,972,488
----------- -----------
----------- -----------
SHARES ISSUED AND REDEEMED
Issued................................................................................... 741,096 1,304,431
Issued in reinvestment of dividends and distributions.................................... 91,400 11,415
Redeemed................................................................................. (308,572) (282,190)
----------- -----------
Net increase........................................................................ 523,924 1,033,656
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
A-25
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
OCC Accumulation Trust ( the 'Trust') was organized May 12, 1994 as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company.
The Trust is authorized to issue an unlimited number of seven classes of shares
of beneficial interest at $.01 par value. The Trust is comprised of seven
portfolios: the Equity Portfolio, the Small Cap Portfolio, the Global Equity
Portfolio (the 'Portfolio'), the Managed Portfolio, the U.S. Government Income
Portfolio, the Mid Cap Portfolio and the Money Market Portfolio. The Mid Cap
Portfolio has not commenced operations as of the date of this report. The
accompanying financial statements and notes thereto are those of the Portfolio.
The Trust is an investment vehicle for variable annuity and variable life
insurance contracts of various life insurance companies, and qualified pension
and retirement plans.
On October 14, 1997, the shareholders of the Trust approved a new
investment advisory agreement with OpCap Advisors (the 'Adviser'). This
agreement was substantially similar to the existing agreement and became
effective on November 5, 1997. On November 4, 1997, PIMCO Advisors L.P. and its
affiliates, acquired a one-third managing general partner interest in
Oppenheimer Capital, whose subsidiary, OpCap Advisors, serves as Adviser to the
Trust. On November 30, 1997, Oppenheimer Capital merged with a subsidiary of
PIMCO Advisors and, as a result, Oppenheimer Capital became an indirect
wholly-owned subsidiary of PIMCO Advisors. On November 3, 1997, CIBC Wood Gundy
Securities Corp. acquired the business of Oppenheimer & Co., Inc., which is now
called CIBC Oppenheimer Corp. Accordingly, CIBC Oppenheimer Corp. is no longer
affiliated with OpCap Advisors or the Trust.
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements:
(A) VALUATION OF INVESTMENTS
Investment securities, other than debt securities, listed on a national
securities exchange or traded in the over-the-counter National Market System
are valued each business day at the last reported sale price; if there are no
such reported sales, the securities are valued at their last quoted bid
price. Other securities traded over-the-counter and not part of the National
Market System are valued at the last quoted bid price. Investment debt
securities (other than short-term obligations) are valued each business day
by an independent pricing service (approved by the Board of Trustees) using
methods which include current market quotations from a major market maker in
the securities and trader-reviewed 'matrix' prices. Short-term debt
securities having a remaining maturity of sixty days or less are valued at
amortized cost or amortized value, which approximates market value. Any
securities or other assets for which market quotations are not readily
available are valued at fair value as determined in good faith by the Board
of Trustees. The ability of issuers of debt instruments to meet their
obligations may be affected by economic developments in a specific industry
or region.
(B) FEDERAL INCOME TAXES
It is the Portfolio's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders; accordingly,
no Federal income tax provision is required.
(C) INVESTMENT TRANSACTIONS AND OTHER INCOME
Investment transactions are accounted for on the trade date. In determining
the gain or loss from the sale of investments, the cost of investments sold has
been determined on the basis of identified cost. Dividend income is recorded on
the ex-dividend date and interest income is accrued as earned. Discounts or
premiums on debt securities purchased are accreted or amortized to interest
income over the lives of the respective securities.
A-26
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) FOREIGN CURRENCY TRANSLATION
The books and records of the Portfolio are maintained in U.S. dollars as
follows: (1) the foreign currency market value of investment securities, other
assets and liabilities stated in foreign currencies are translated at the
exchange rate at the end of the period; and (2) purchases, sales, income and
expenses are translated at the rate of exchange prevailing on the respective
dates of such transactions. The resultant exchange gains and losses are included
in the Portfolio's Statement of Operations. Since the net assets of the
Portfolio are presented at the foreign exchange rates and market prices at the
close of the period, the Portfolio does not isolate the portion of the results
of operations arising as a result of changes in the exchange rates from
fluctuations arising from changes in the market price of securities.
(E) DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders from net investment income and
net realized capital gains, if any, are declared and paid at least annually.
The Portfolio records dividends and distributions to its shareholders on
the ex-dividend date. The amount of dividends and distributions is determined in
accordance with Federal income tax regulations, which may differ from generally
accepted accounting principles. These 'book-tax' differences are either
considered temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal income tax treatment; temporary differences do not
require reclassification. To the extent dividends and/or distributions exceed
current and accumulated earnings and profits for Federal income tax purposes,
they are reported as dividends and/or distributions of paid-in-capital or tax
return of capital. Net assets are not affected.
The following table discloses the cumulative effect between the respective
capital accounts substantially all of which related to foreign currency
transactions:
<TABLE>
<CAPTION>
ACCUMULATED NET
REALIZED LOSS ACCUMULATED
PAID-IN ON INVESTMENTS DISTRIBUTION IN
CAPITAL AND FOREIGN EXCESS OF NET
IN EXCESS CURRENCY INVESTMENT
OF PAR TRANSACTIONS INCOME
---------------- --------------- ---------------
<S> <C> <C>
($3,111) $35,211 ($32,100)
</TABLE>
(F) ALLOCATION OF EXPENSES
Expenses specifically identifiable to a particular portfolio are borne by
that portfolio. Other expenses are allocated to each portfolio of the Trust
based on its net assets in relation to the total net assets of all applicable
portfolios of the Trust or another reasonable basis.
(G) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
(H) EXPENSES OFFSET
The Portfolio benefits from an expense offset arrangement with its
custodian bank where uninvested cash balances earn credits that reduce monthly
fees. Had these cash balances been invested in income producing securities, they
would have generated income for the Portfolio.
A-27
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(A) The investment advisory fee is accrued daily and payable monthly to the
Adviser, and is computed as a percentage of the Portfolio's net assets as of
the close of business each day at the annual rate of .80% on the first $400
million, .75% on the next $400 million and .70% thereafter. The Adviser has
voluntarily agreed to waive that portion of the advisory fee and to assume
any necessary expense to limit total operating expenses of the Portfolio to
1.25% (net of expenses offset) of average net assets on an annual basis.
(B) Total brokerage commissions paid by the Portfolio for the year ended
December 31, 1997 amounted to $49,976, of which CIBC Oppenheimer Corp. received
$4,675.
(3) PURCHASES AND SALES OF INVESTMENTS
For the year ended December 31, 1997, purchases and sales of investment
securities, other than short-term securities, were $17,513,021 and $11,154,825,
respectively.
(4) UNREALIZED APPRECIATION (DEPRECIATION) AND COST OF INVESTMENTS FOR FEDERAL
INCOME TAX PURPOSES
Aggregate gross unrealized appreciation for securities in which there is an
excess of value over tax cost is $4,225,022, aggregate gross unrealized
depreciation for securities in which there is an excess of tax cost over value
is $1,442,358 and net unrealized appreciation for Federal income tax purposes is
$2,782,664. Federal income tax cost basis of portfolio securities is $22,343,355
at December 31, 1997. Net capital and currency losses incurred after October 31,
1997 are deemed to arise on the first business day of the following year. During
the fiscal year ended December 31, 1997, the Portfolio incurred and elected to
defer $6,804 in net currency losses.
A-28
<PAGE>
OCC ACCUMULATION TRUST
GLOBAL EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------- MARCH 1, 1995 (1) TO
1997 1996 DECEMBER 31, 1995
----------- ----------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period............................ $ 13.23 $ 11.61 $ 10.00
----------- ----------- -----------
Income from investment operations
Net investment income........................................... 0.06 0.04 0.05
Net realized and unrealized gain (loss) on investments.......... 1.79 1.70 1.83
----------- ----------- -----------
Total income from investment operations....................... 1.85 1.74 1.88
----------- ----------- -----------
Dividends and distributions to shareholders
Dividends to shareholders from net investment income............ (0.04) (0.05) (0.03)
Distributions to shareholders in excess of net investment
income........................................................ (0.03) -- --
Distributions to shareholders from net realized gains........... (0.69) (0.07) (0.24)
----------- ----------- -----------
Total dividends and distributions to shareholders............. (0.76) (0.12) (0.27)
----------- ----------- -----------
Net asset value, end of period.................................. $ 14.32 $ 13.23 $ 11.61
----------- ----------- -----------
----------- ----------- -----------
Total return (2)................................................ 14.0% 15.0% 18.9%
----------- ----------- -----------
----------- ----------- -----------
Net assets, end of period....................................... $25,873,628 $16,972,488 $ 2,891,321
----------- ----------- -----------
Ratio of net operating expenses to average net assets (5,6)..... 1.19%(4) 1.42% 1.25%(3)
----------- ----------- -----------
Ratio of net investment income to average net assets (6)........ 0.45%(4) 0.81% 1.02%(3)
----------- ----------- -----------
Portfolio turnover rate......................................... 53% 40% 67%
----------- ----------- -----------
Average commission rate......................................... $ 0.0253 $ 0.0254 --
----------- ----------- -----------
</TABLE>
- ------------------------
(1) Commencement of operations.
(2) Assumes reinvestment of all dividends and distributions. Aggregate (not
annualized) total return is shown for any period shorter than one year.
(3) Annualized.
(4) Average net assets for the year ended December 31, 1997 were $23,063,042.
(5) For fiscal periods ending after September 1, 1995, the ratios are calculated
to include expenses offset by earnings credits from a custodian bank (See
note 1H in Notes to Financial Statements).
(6) During the periods noted above, the Adviser waived a portion or all of its
fees and assumed a portion of the Portfolio's operating expenses. If such
waivers and assumptions had not been in effect, the ratios of net operating
expenses to average net assets and the ratios of net investment income
(loss) to average net assets would have been 1.20% and 0.44%, respectively,
for the year ended December 31, 1997, and 1.83% and 0.22%, respectively, for
the year ended December 31, 1996 and 3.94% and (1.67%), annualized,
respectively, for the period March 1, 1995 (commencement of operations) to
December 31, 1995.
A-29
<PAGE>
Report of Independent Accountants
To the Shareholders and Trustees of
OCC Accumulation Trust -- Global Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Global Equity Portfolio (one of the
seven portfolios constituting OCC Accumulation Trust, hereafter referred to as
the 'Portfolio') at December 31, 1997, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
'financial statements') are the responsibility of the Portfolio's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian and broker and the
application of alternative procedures where a confirmation from a broker was not
received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
February 11, 1998
A-30
<PAGE>
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements:
Included in the Prospectus:
Financial Highlights
Included in Part B:
Schedule of Investments, Statements of Assets and
Liabilities, Statements of Operations, Statements of Changes
in Net Assets, Financial Highlights, Notes to Financial
Statements and Report of Independent Accountants for the
fiscal year ended December 31, 1997.
Included in Part C:
None
C-1
<PAGE>
EXHIBITS:
(1) (a) Declaration of Trust - Previously filed with Post-Effective
Amendment No. 3.
(b) Amendment to Declaration of Trust dated September 1, 1994 -
Previously filed with Post Effective Amendment No. 3.
(c) Amendment to Declaration of Trust dated September 16, 1994 -
Previously filed with Post-Effective Amendment No. 3.
(d) Amendment to Declaration of Trust dated April 22, 1996 -
Previously filed with Post-Effective Amendment No. 2.
(2) By-Laws of Registrant - Previously filed with Post-Effective
Amendment No. 3.
(3) Not Applicable.
(4) Not Applicable.
(5) Investment Advisory Agreement.
(6) Distribution Agreement.
(7) Not Applicable.
(8) Custody Agreement - Previously filed with Post-Effective
Amendment No. 3.
(9) (a) Transfer Agency and Service Agreement - Previously filed
with Post-Effective Amendment No. 3.
(b) Participation Agreement for American Enterprise Life
Insurance Company - Previously filed with Post-Effective
Amendment No. 3.
(c) Amendment No. 1 to Participation Agreement for American
Enterprise Life Insurance Company - Previously filed with
Post-Effective Amendment No 7.
(d) Participation Agreement for Connecticut General Life
Insurance Company and amendment dated August 30, 1996 -
Previously filed with Post-Effective Amendment No. 3.
(e) Participation Agreement for IL Annuity and Insurance
Company - Previously filed with Post-Effective Amendment No. 2.
C-2
<PAGE>
(f) Participation Agreement for Connecticut General Life
Insurance Company (Separate Account T3)-Previously filed with
Post-Effective Amendment No. 2.
(g) Fund Participation Agreement for CIGNA Life Insurance
Company dated September 5, 1996 - Previously filed with Post-
Effective Amendment No. 3.
(h) Amendment to Fund Participation Agreement for Connecticut
General Life Insurance Company dated 4/23/97 - Previously filed
with Post-Effective Amendment No. 5.
(i) Participation Agreement for Providentmutual Life dated
9/16/94 - Previously file with Post-Effective Amendment No. 5.
(j) Participation Agreement for PRUCO Life Insurance Company of
Arizona dated 7/1/96 - Previously filed with Post-Effective
Amendment No. 5.
(k) Participation Agreement for PRUCO Life Insurance Company of
New Jersey dated 1/1/97 - Previously filed with Post-Effective
Amendment No. 5.
(l) Participation Agreement for Prudential Insurance of
America - Previously filed with Post-Effective Amendment
No. 5.
(m) Participation Agreement for MONY Life Insurance Company of
America and The Mutual Life Insurance Company of New York dated
as of September 16, 1994 - Previously filed with Post-Effective
Amendment No. 7.
(n) Participation Agreement for ReliaStar Life Insurance Company
dated August 8, 1997 - Previously filed with Post-Effective
Amendment No. 7.
(o) Participation Agreement for ReliaStar Bankers Security Life
Insurance Company dated August 8, 1997 - Previously filed with
Post-Effective Amendment No. 7.
(p) Participation Agreement for Northern Life Insurance Company
dated August 8, 1997 - Previously filed with Post-Effective
Amendment No. 7.
(q) Participation Agreement for American Centurion Life
Insurance Assurance Company - Previously filed with Post-
Effective Amendment No. 7.
(r) Participation Agreement for Sun Life Assurance Company of
Canada (U.S.) dated as of February 17, 1998.
(s) Participation Agreement for Transamerica Life Insurance
Company of New York dated December 15, 1997.
C-3
<PAGE>
(t) Participation Agreement for Transamerica Occidental Life
Insurance Company dated December 15, 1997
(u) Participation Agreement for Transamerica Life and Annuity
Company dated December 15, 1997
(10) Opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when
sold be legally issued, fully paid and non-assessable -
Previously filed with Post-Effective Amendment No. 3.
(11) Consent of Independent Accountants.
(12) Not Applicable.
(13) Agreement relating to initial capital - Previously filed with
Post-Effective Amendment No. 3.
(14) Not Applicable.
(15) Not Applicable.
(16) Schedule showing computation of performance quotations provided
in response to Item 22 - Previously filed with Post-Effective
Amendment No. 3.
(17) Financial Data Schedules.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is presently controlled by or under common control with the
Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
Number of Record
Holders as of
Title of Class March 31, 1998
-------------- --------------
SHARES OF BENEFICIAL INTEREST
-----------------------------
<S> <C>
Equity Portfolio.....................................14
Managed Portfolio....................................28
Money Market Portfolio................................2
Small Cap Portfolio..................................27
Global Equity Portfolio..............................10
U.S. Government Income Portfolio......................8
Mid Cap Portfolio.....................................2
</TABLE>
C-4
<PAGE>
ITEM 27. INDEMNIFICATION
Pursuant to Article V, Sec. 5.3 of the Registrant's Declaration
of Trust, the Trustees shall provide for indemnification by the Trust
of any present or former trustee, officer or agent in connection with
any claim, action, suit or proceeding in which he becomes involved as
a party or otherwise by virtue of his being, or having been, a
trustee, officer or agent of the Trust. The Trust By-Laws provide
that, in other than derivative or shareholder suits, trustees,
officers and/or agents will be indemnified against expenses of actions
or omissions if the actions or omissions complained of were in good
faith and reasonably believed to be in and not opposed to the best
interests of the Trust, or, if a criminal action, the accused had no
cause to believe his conduct was unlawful.
In derivative and shareholder actions, such trustee, officer
and/or agent shall be indemnified against expenses except where
liability arises by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duties as described in Section
17(h) and (i) of the Investment Company Act of 1940. Either Trustees
not a party to the action, shareholders or independent legal counsel
by written opinion may, in appropriate circumstances, decide questions
of indemnification under the By-Laws.
The Trust may purchase insurance insuring its officers and
trustees against certain liabilities in their capacity as such, and
insuring the Trust against any payments which it is obligated to make
to such persons under any foregoing indemnification provisions.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Management of the Fund" in the Prospectus and "Investment
Management and Other Services" in the Additional Statement regarding
the business of the investment adviser. Set forth below is
information as to the business, profession, vocation or
C-5
<PAGE>
employment of a substantial nature of each of the officers and
directors of the investment adviser.
Name & Current Position with Other Business and Connections
OpCap Advisors During the Past Two Years
- ---------------------------- ------------------------------
Thomas E. Duggan, General Counsel Managing Director and General Counsel
& Secretary of Oppenheimer Capital; General
Counsel and Secretary of
Oppenheimer Capital Limited and
OCC Distributors.
Bernard H. Garil, President Managing Director of Oppenheimer
Capital; Director of Oppenheimer
Capital Trust Company.
Sheldon M. Siegel, Treasurer and Managing Director/Treasurer/Chief
Chief Financial Officer Financial Officer of Oppenheimer
Capital; Treasurer and Chief Financial
Officer of Oppenheimer Capital Limited
and OCC Distributors
The address of OpCap Advisors is 200 Liberty Street, New York,
New York 10281.
ITEM 29. PRINCIPAL UNDERWRITER
(a) OCC Distributors acts as principal underwriter for the Registrant
and, OCC Cash Reserves, Inc.
(b) Set forth below is certain information pertaining to the partners
and officers of OCC Distributors, Registrant's Principal
Underwriter; the Principal Business Address of each is One World
Financial Center, New York, New York, 10281 except for Value
Advisors LLC whose Principal Business Address is: 800 Newport
Center Drive, Newport Beach, CA 92660
C-6
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ------------------- --------------------- ---------------------
<S> <C> <C>
Oppenheimer Capital General Partner None
Value Advisors LLC General Partner None
Everett Alcenat Principal None
Sheldon Siegel Treasurer Treasurer
Thomas E. Duggan Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF REQUIRED RECORDS -- RULE 31a-1
(Except those maintained by Custodian and Transfer Agent)
OpCap Advisors
One World Financial Center
New York, NY 10281
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to assist shareholder communication
in accordance with the provisions of Section 16 of the Investment
Company Act of 1940 and to call a meeting of shareholders for the
purpose of voting upon the question of the removal of a Trustee
or Trustees when requested in writing to do so by the holders of
at least 10% of the Registrant's outstanding shares of beneficial
interest.
(d) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest annual
report to shareholders upon request and without charge, if the
information called for by Item 5A of Form N-1A is contained in
the latest annual report to shareholders.
C-7
<PAGE>
OCC ACCUMULATION TRUST
INDEX TO EXHIBITS
EXHIBIT NO.
(5) Investment Advisory Agreement
(6) Distribution Agreement
(9)(r) Participation Agreement for Sun Life Assurance Company of Canada
(U.S.).
(9)(s) Participation Agreement for Transamerica Life Insurance Company of New
York.
(9)(t) Participation Agreement for Transamerica Occidental Life Insurance
Company.
(9)(u) Participation Agreement for Transamerica Life and Annuity Company.
(11) Consent of independent accountants
(17) Financial Data Schedules
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
registration statement to be signed on its behalf by the undersigned thereto
duly authorized in the City of New York, and State of New York on the 17 day of
April, 1998.
OCC ACCUMULATION TRUST
/s/Joseph M. La Motta
-----------------------------
Joseph M. La Motta, President
Attest:
/s/Deborah Kaback
- -------------------------
Deborah Kaback, Secretary
Pursuant to the requirements of the Securities Act of 1933 this
registration statement has been signed below by the following persons in the
capacities and on the date indicated:
OCC ACCUMULATION TRUST
Date
----
/s/Joseph M. La Motta 4/17/98
- -------------------------------------- -----------------------
Joseph M. La Motta, President, Trustee
/s/Paul Y. Clinton 4/17/98
- -------------------------------------- -----------------------
Paul Y. Clinton, Trustee
/s/Thomas W. Courtney 4/17/98
- -------------------------------------- -----------------------
Thomas W. Courtney, Trustee
/s/Lacy B. Herrmann 4/17/98
- -------------------------------------- -----------------------
Lacy B. Herrmann, Trustee
/s/George Loft 4/17/98
- -------------------------------------- -----------------------
George Loft, Trustee
/s/Deborah Kaback 4/17/98
- -------------------------------------- -----------------------
Deborah Kaback, Secretary
/s/Sheldon Siegel 4/17/98
- -------------------------------------- -----------------------
Sheldon Siegel, Treasurer
C-9
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 5th day of November, 1997, and amended this 1st
day of February, 1998, by and between OCC ACCUMULATION TRUST (formerly called
Quest for Value Accumulation Trust and before that, Quest for Value Asset
Builder Trust), a Massachusetts business trust (the "Fund") and OPCAP
ADVISORS (formerly called Quest for Value Advisors), a Delaware general
partnership (the "Manager").
WHEREAS, the Fund is an open-end, diversified, management investment
company, organized in "series" form and comprised of eight separate
investment portfolios (the "Portfolios" or the "Series") and is registered
with the Securities and Exchange Commission (the "Commission") pursuant to
the Investment Company Act of 1940 (the "1940 Act");
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the Fund and the Manager agree as follows:
1. GENERAL PROVISIONS
The Fund hereby employs the Manager and the Manager hereby undertakes to
act as the investment adviser of the Fund in connection with and for the
benefit of each Portfolio, including any Portfolio hereafter created, and to
perform for the Fund and for each of the Portfolios such other duties and
functions in connection with each Portfolio for the period and on such terms
as set forth in this Agreement. The Manager shall, in all matters, give to
the Fund and its Board of Trustees (the "Trustees") the benefit of its best
judgment, effort, advice and recommendations and shall at all times conform
to, and use its best efforts to enable the Fund to conform to:
(a) the provisions of the 1940 Act and any rules or regulations
thereunder;
(b) any other applicable provisions of state or federal law;
(c) the provisions of the Declaration of Trust and By-Laws of the
Fund as amended from time to time;
(d) the policies and determinations of the Trustees;
(e) the investment objectives and policies and investment
restrictions of each Portfolio as reflected in the registration
statement of the Fund under the 1940 Act or as such objectives,
policies and restrictions may from time to time be amended; and
(f) the prospectus, if any, of the Fund in effect from time to time.
The appropriate officers and employees of the Manager shall be available upon
reasonable notice for consultation with any of the Trustees or officers with
respect to any matters dealing with the Fund's business affairs, including
the valuation of any securities held by the Fund for the benefit of any
Portfolio that are either not registered for public sale or not being traded
on any securities market.
<PAGE>
2. INVESTMENT MANAGEMENT
(a) The Manager shall, subject to the direction and control by the
Trustees, separately with respect to each Portfolio: (i) regularly
provide investment advice and recommendations to the Fund with
respect to it's investments, investment policies, and the purchase
and sale of securities and commodities; (ii) supervise continuously
and determine the securities and commodities to be purchased or
sold by the Fund and the portion, if any, of the Fund's assets to
be held uninvested; and (iii) arrange, subject to the provisions of
Section 6 hereof, for the purchase and sale of securities,
commodities and other investments by the Fund.
(b) The Manager may obtain investment information, research or
assistance from any other person, firm or corporation to
supplement, update or otherwise improve its investment management
services, including entering into sub-advisory agreements with
other affiliated or unaffiliated registered investment advisers in
order to obtain specialized services; provided, however, that the
Fund shall not be required to pay any compensation other than as
provided by the terms of this Agreement and subject to the
provisions of Section 5 hereof.
(c) So long as the Manager shall have acted with due care and in
good faith, the Manager shall not be liable to the Fund or its
shareholders for any error in judgment, mistake of law, or any
other act or omission in the course of or connected with, rendering
services hereunder, including without limitation, any losses which
may be sustained by the Fund or its shareholders as a result of the
purchase, holding, redemption, or sale of any security by the Fund
irrespective of whether the determinations of the Manager relative
thereto shall have been based, in whole or in part, upon the
investigation, research or recommendation of any other individual,
firm or corporation believed by the Manager to be reliable.
Nothing herein contained shall, however, be construed to protect
the Manager against any liability to the Fund or its shareholders
arising out of the Manager's willful misfeasance, bad faith, or
gross negligence in the performance of its duties or reckless
disregard of its obligations and duties under this Agreement.
(d) Nothing in this Agreement shall prevent the Manager, any
parent, subsidiary or affiliate, or any director or officer
thereof, from acting as investment adviser for any other person,
firm, or corporation, and shall not in any way limit or restrict
the Manager or any of its directors, officers, stockholders or
employees from buying, selling or trading any securities or
commodities for its or their own account or for the account of
others for whom it or they may be acting, if such activities will
not adversely affect or otherwise impair the performance by the
Manager of its duties and obligations under this Agreement.
2
<PAGE>
3. OTHER DUTIES OF THE MANAGER
The Manager shall, at its own expense, provide and supervise the
activities of all administrative and clerical personnel and shall be required
to provide effective corporate administration for the Fund, including (1)
coordination of the functions of accountants, counsel and other parties
performing services for the Fund, (2) the preparation and filing of such
reports related to the Fund or to any Portfolio as shall be required by
federal securities laws and various state "blue sky" laws, (3) composition of
periodic reports with respect to its operations for shareholders of the Fund
and (4) composition of proxy materials for meetings of the Fund's
shareholders.
4. ALLOCATION OF EXPENSES
The Manager will bear all costs and expenses of its employees and
overhead incurred by it in connection with its duties hereunder except as
noted in Section 5 below. All other expenses (other than those to be paid by
the Fund's distributor under a distribution agreement), shall be paid by the
Fund, including, but not limited to:
(a) interest expense, taxes and governmental fees;
(b) brokerage commissions and other expenses incurred in acquiring
or disposing of the Fund's securities and commodities holdings;
(c) insurance premiums for fidelity and other coverage requisite to
the Fund's operations;
(d) fees of the Trustees other than those who are interested
persons of the Fund and out-of-pocket travel expenses for all
Trustees and other expenses incurred by the Fund in connection with
Trustees' meetings;
(e) outside legal, accounting and audit expenses;
(f) custodian, dividend disbursing, and transfer agent fees and
expenses;
(g) expenses in connection with the issuance, offering, sale or
underwriting of securities issued by the Fund, including
preparation of stock certificates;
(h) fees and expenses, other than as hereinabove provided, incident
to the registration or qualification of the Fund's shares for sale
with the Commission and in various states and foreign jurisdictions;
(i) expenses of printing and mailing reports and notices and proxy
material to the Fund's shareholders;
(j) all other expenses incidental to holding meetings of the Fund's
shareholders;
(k) expenses of organizing the Fund; and
3
<PAGE>
(l) such extraordinary non-recurring expenses as may arise,
including litigation affecting the Fund and the legal obligation
the Fund may have to indemnify its officers and Trustees with
respect thereto.
Notwithstanding the foregoing, the Manager shall pay all salaries and
fees of each of the Fund's officers and Trustees who are interested persons
of the Manager.
5. COMPENSATION OF THE MANAGER
(a) The Fund agrees to pay the Manager, and the Manager agrees to
accept as full compensation for the performance of all its
functions and duties to be performed hereunder, a fee based on the
total net assets of each Portfolio at the end of each business day.
Determination of net asset value of each Portfolio will be made in
accordance with the policies disclosed in the Fund's registration
statement under the 1940 Act. The fee is payable at the close of
business on the last day of each calendar month and shall be made
on the first business day following such last calendar day. The
payment due on such day shall be computed by (1) adding together
the results of multiplying (i) the total net assets of each
Portfolio on each day of the month by (ii) the applicable daily
fraction of the annual advisory fee percentage rate for such
Portfolio as set forth on Schedule A hereto and then (2) adding
together the total monthly amounts computed for each Portfolio.
(b) In the event the operating expenses (net of any expense
offsets) of the Fund, including any amounts payable to the Manager
pursuant to subsection (a) hereof, but excluding the amount of any
interest, taxes, brokerage commissions, distribution fees, and
extraordinary expenses (including but not limited to legal claims
and liabilities and litigation costs and any indemnification
related thereto) paid or payable by the Fund for any fiscal year
ending on a date during which this Agreement is in effect, exceed
the most restrictive state law provisions in effect in states where
the Fund is qualified to be sold, the Manager will pay or refund to
the Fund any such excess amount. In addition, the Manager shall
waive any amounts payable to the Manager pursuant to subsection (a)
hereof, and reimburse the Fund such that total operating expenses
(net of any expense offsets) of each of the Portfolios of the Fund
except the Global Equity Portfolio do not exceed 1.00% of their
respective average daily net assets and such that total operating
expenses (net of any expense offsets) of the Global Equity
Portfolio do not exceed 1.25% of its average daily net assets.
Whenever the expenses of a Portfolio exceed a pro rata portion of
the expense limitations stated above, the monthly amount payable to
the Manager will be reduced or postponed in the amount of such
excess.
6. PORTFOLIO TRANSACTIONS AND BROKERAGE
(a) The Manager is authorized, in arranging the purchase and sale
of the Fund's portfolio securities, to employ or deal with such
members of securities exchanges and brokers or dealers, including
CIBC Oppenheimer Corp. ("CIBC Oppenheimer") ("broker/dealer"), as
may, in the Manager's best judgment based on all relevant factors,
implement the policy of
4
<PAGE>
the Fund to obtain, at reasonable expense, the "best execution"
(prompt and reliable execution of the Fund's securities
transactions at the most favorable security prices obtainable of
the Fund's securities transactions) as well as to obtain,
consistent with the provisions of subparagraph (c) of this Section
6, the benefit of such investment information or research as will
be of significant assistance to the Manager in the performance of
its functions and duties under this Agreement.
(b) The Manager shall select broker/dealers to effect the Fund's
securities transactions on the basis of its estimate of the ability
of such broker/dealers to obtain best execution of particular and
related securities transactions. The ability of a broker/dealer to
obtain best execution of particular securities transaction(s) will
be judged by the Manager on the basis of all relevant factors and
considerations, including, insofar as feasible, the execution
capabilities required by the transactions; the ability and
willingness of the broker/dealer to facilitate the Fund's
securities transactions by participating therein for its own
account; the importance to the Fund of speed, efficiency or
confidentiality; the broker/dealer's apparent familiarity with
sources from or to whom particular securities might be purchased or
sold; and any other matters relevant to the selection of a
broker/dealer for particular and related transactions of the Fund.
(c) The Manager shall have discretion, in the interests of the
Fund, to allocate brokerage on the Fund's securities transactions
to broker/dealers qualified to provide best execution of such
transactions who provide brokerage and/or research services (as
such services are defined in Section 28(e)(3) of the Securities
Exchange Act of 1934 (the "1934 Act")) for the Fund and/or other
accounts for which the Manager exercises investment discretion (as
that term is defined in Section 3(a)(35) of the 1934 Act) and to
cause the Fund to pay such broker/dealers (other than CIBC
Oppenheimer) a commission for effecting a securities transaction
for the Fund that is in excess of the amount of commission another
broker/dealer adequately qualified to effect such transaction would
have charged for effecting that transaction, if the Manager
determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage and/or research services
provided by such broker/dealer, viewed in terms of either that
particular transaction or the Manager's overall responsibilities
with respect to the accounts as to which it exercises investment
discretion. In reaching such determination, the Manager will not
be required to place or attempt to place a specific dollar value on
the brokerage and/or research services provided by such
broker/dealer. In demonstrating that such determinations were made
in good faith, the Manager shall be prepared to show that all
commissions were allocated to such broker/dealers for purposes
contemplated by this Agreement and that the total commissions paid
by the Fund over a representative period selected by the Trustees
were reasonable in relation to the benefits received by the Fund.
Such research information may be in written form or through direct
contact with individuals, and may include information on particular
companies and industries as well as market, economic or
institutional activity areas.
5
<PAGE>
(d) The Manager shall have no duty or obligation to seek advance
competitive bidding for the most favorable commission rate
applicable to any particular securities transactions or to select
any broker/dealer on the basis of its purported or "posted"
commission rate, although it will, to the best of its ability,
endeavor to be aware of the current level of the charges of
eligible broker/dealers and to minimize the expense incurred by the
Fund for effecting its securities transactions to the extent
consistent with the interests and policies of the Fund as
established by the determinations of the Trustees and the
provisions of this Section 6.
(e) The Fund recognizes and intends that, subject to the foregoing
provisions of this Section 6, CIBC Oppenheimer will act as its
regular broker so long as it is lawful for it so to act and that
CIBC Oppenheimer may be a major recipient of brokerage commissions
paid by the Fund. CIBC Oppenheimer may effect securities
transactions for the Fund only if (1) the commissions, fees or
other remuneration received or to be received by it are reasonable
and fair compared to the commissions, fees or other remuneration
received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold
on a securities exchange during a comparable period of time and (2)
to the extent required, the Trustees, including a majority of those
Trustees who are not interested persons, have adopted procedures
pursuant to Rule 17e-1 under the 1940 Act for determining the
permissible level of such commissions.
(f) Sales of shares of the Fund and/or shares of the other
investment companies managed by the Manager or distributed by the
Fund's distributor may, subject to applicable rules covering the
distributor's activities in this area, also be considered as a
factor in the direction of securities transactions to dealers, but
only in conformity with the price, execution and other
considerations and practices discussed above. Those other
investment companies may also give similar consideration relating
to the sale of the Fund's shares. The Fund will not purchase any
securities from or sell any securities to CIBC Oppenheimer acting
as principal for its own account.
(g) When orders to purchase or sell the same security on identical
terms are placed by more than one of the funds and/or other
advisory accounts managed by the Manager or its affiliates, the
transactions are generally executed as received, although a fund or
advisory account that does not direct trades to a specific broker
("free trades") usually will have its order executed first.
Purchases are combined where possible for the purpose of
negotiating brokerage commissions, which in some cases might have a
detrimental effect on the price or volume of the security in a
particular transaction as far as the Fund is concerned. Orders
placed by accounts that direct trades to a specific broker will
generally be executed after the free trades. All orders placed on
behalf of the Fund are considered free trades. However, having an
order placed first in the market does not necessarily guarantee the
most favorable price.
6
<PAGE>
7. DURATION
This Agreement will become effective as of the date hereof. This
Agreement will continue in effect for two years from the date hereof and
thereafter (unless sooner terminated in accordance with this agreement) for
successive periods of twelve months so long as each continuance shall be
specifically approved at least annually with respect to each Portfolio by (1)
the vote of a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and (2) a majority
of the Trustees or of a majority of the outstanding voting securities of the
respective Portfolios of the Fund.
8. TERMINATION
This Agreement may be terminated (i) by the Manager at any time, without
payment of any penalty upon giving the Fund ninety (90) days' written notice
(which notice may be waived by the Fund); or (ii) by the Fund at any time,
without payment of any penalty upon sixty (60) days' written notice to the
Manager (which notice may be waived by the Manager), provided that such
termination by the Fund shall be directed or approved by the vote of the
majority of all of the Trustees or by the vote of a majority of the
outstanding voting securities of the Portfolios of the Fund with respect to
which notice of termination has been given to the Manager.
9. AMENDMENT OR ASSIGNMENT
This Agreement may be amended with respect to a Portfolio only if such
amendment is specifically approved by (i) the vote of the outstanding voting
securities of such Portfolio and (ii) a majority of the Trustees, including a
majority of those Trustees who are not parties to this Agreement or
interested persons of such party, cast in person at a meeting called for the
purpose of voting on such approval, provided that this Agreement may be
amended to add a new Portfolio or delete an existing Portfolio without a vote
of the shareholders of any other Portfolio covered by this Agreement. This
Agreement shall automatically and immediately terminate in the event of its
assignment, as that term is defined in the 1940 Act and the rules thereunder.
10. GOVERNING LAW
This Agreement shall be interpreted in accordance with the laws of the
State of New York and the applicable provisions of the 1940 Act, other
securities laws and rules thereunder. To the extent that the applicable laws
of the State of New York, other securities laws or any of the provisions
herein, conflict with the applicable provisions of the 1940 Act, the latter
shall control.
11. SEVERABILITY
If any provisions of this Agreement shall be held or made unenforceable
by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
7
<PAGE>
12. DEFINITIONS
As used in this Agreement, the terms "interested person" and "vote of a
majority of the outstanding securities" shall have the respective meanings
set forth in Sections 2(a)(19) and 2(a)(42) of the 1940 Act.
13. NO LIABILITY OF SHAREHOLDERS
This Agreement is executed by the Trustees of the Fund, not
individually, but rather in their capacity as Trustees under the Declaration
of Trust made May 12, 1994. None of the Shareholders, Trustees, officers,
employees, or agents of the Fund shall be personally bound or liable under
this Agreement, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder but only to the property of
the Fund and, if the obligation or claim relates to the property held by the
Fund for the benefit of one or more but fewer than all Portfolios, then only
to the property held for the benefit of the affected Portfolio.
14. NOTICE OF CHANGE IN PARTNERSHIP OF MANAGER
The Manager agrees to notify the Fund within a reasonable period of time
regarding a material change in the membership of the Manager.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
OCC ACCUMULATION TRUST
Attest:
/s/ Howard Smith Jr.
- --------------------------
By: /s/ Deborah Kaback
----------------------------
Title: Secretary
OPCAP ADVISORS
Attest:
/s/ Sandra Hauges
- --------------------------
By: /s/ Thomas E. Duggan
----------------------------
Title: Secretary
8
<PAGE>
SCHEDULE A
to
Investment Advisory Agreement
between
OCC Accumulation Trust and OpCap Advisors
<TABLE>
<CAPTION>
ANNUAL FEE AS A
PERCENTAGE OF DAILY
NAME OF SERIES NET ASSETS
- -------------- -------------------
<S> <C>
Equity Portfolio 0.80% on first $400 million
0.75% on next $400 million
0.70% thereafter
Mid Cap Portfolio 0.80% on first $400 million
0.75% on next $400 million
0.70% thereafter
Small Cap Portfolio 0.80% on first $400 million
0.75% on next $400 million
0.70% thereafter
Managed Portfolio 0.80% on first $400 million
0.75% on next $400 million
0.70% thereafter
Global Equity Portfolio 0.80% on first $400 million
0.75% on next $400 million
0.70% thereafter
U.S. Government Income Portfolio .60%
Bond Portfolio .50%
Money Market Portfolio .40%
</TABLE>
9
<PAGE>
GENERAL DISTRIBUTOR'S AGREEMENT
BETWEEN
OCC ACCUMULATION TRUST
AND
OCC DISTRIBUTORS
November 5, 1997
OCC Distributors
c/o Oppenheimer Capital
Oppenheimer Tower, 37th Floor
World Financial Center
New York, New York 10281
Dear Sirs:
OCC ACCUMULATION TRUST, a Massachusetts business trust (the "Fund"), is
registered as an investment company under the Investment Company Act of 1940,
as amended (the "1940 Act"), and an indefinite number of shares of its
capital stock (hereinafter referred to as "shares") is registered under the
Securities Act of 1933, as amended (the "1933 Act") to be offered for sale to
the public in a continuous public offering in accordance with the terms and
conditions set forth in the Prospectus included in the Fund's Registration
Statement as it may be amended from time to time.
In this connection, the Fund desires that your firm act as General
Distributor and as Agent of the Fund for the sale and distribution of shares
which have been registered as described above and of any additional shares
which may become registered during the term of this Agreement. You have
advised the Fund that you are willing to act as such General Distributor and
Agent, and it is accordingly agreed between us as follows:
1. The Fund hereby appoints you as General Distributor as exclusive
Agent for sale of its shares, pursuant to the aforesaid continuous public
offering of its shares, and the Fund further agrees from and after the date
of this Agreement, that it will not, without your consent, sell or agree to
sell any shares otherwise than through you except the Fund may issue shares
in connection with a merger, consolidation or acquisition of assets on such
basis as may be authorized or permitted under the 1940 Act.
2. You hereby accept such appointment and agree to use your best efforts
to sell such shares, provided, however, that when requested by the Fund at any
time because of market or other economic considerations or abnormal
circumstances of any kind, you will suspend such efforts. The Fund may also
withdraw the offering of the shares at any time when required by the provisions
of any statute,
<PAGE>
order, rule or regulation of any governmental body having jurisdiction. It
is understood that you do not undertake to sell all or any specific portion
of the shares of the Fund.
3. The shares shall be sold by you at net asset value.
4. As General Distributor, you shall have the right to accept or reject
orders for the purchase of shares of the Fund. Any consideration which you
may receive in connection with a rejected purchase order will be returned
promptly. You agree promptly to issue confirmations of all accepted purchase
orders and to transmit a copy of such confirmations to the Fund, or if so
directed, to any duly appointed transfer or shareholder servicing agent of
the Fund. The net asset value of all shares which are the subject of such
confirmations, computed in accordance with the applicable rules under the
1940 Act, shall be a liability of your company to the Fund to be paid
promptly after receipt of payment from the originating dealer and not later
than eleven business days after such confirmation even if you have not
actually received payment from the originating dealer. If the originating
dealer shall fail to make timely settlement of its purchase order in
accordance with the rules of the National Association of Securities
Dealers,Inc., you shall have the right to cancel such purchase order and, at
your account and risk, to hold responsible the originating dealer. You agree
promptly to reimburse the Fund for any amount by which the Fund's losses
attributable to any such cancellation or to errors on your part in relation
to the effective date of accepted purchase orders, exceed contemporaneous
gains realized by the Fund for either of such reasons in respect to other
purchase orders. The Fund shall register or cause to be registered all
shares sold by you pursuant to the provisions hereof in such name or names
and amounts as you may request from time to time and the Fund shall issue or
cause to be issued certificates evidencing such shares for delivery to you or
pursuant to your direction if and to the extent that the shareholder account
in question contemplates the issuance of such share certificates. All shares
of the Fund, when so issued and paid for, shall be fully paid and
non-assessable.
5. The Fund has delivered to you a copy of its current prospectus. The
Fund agrees that it will use its best efforts to continue the effectiveness
of the Fund's Registration Statement under the 1933 Act. The Fund further
agrees to prepare and file any amendments to its Registration Statement as
may be necessary and any supplemental data in order to comply with the 1933
Act. The Fund will furnish you at your expense with a reasonable number of
copies of the Prospectus and any amended Prospectus for use in connection
with the sale of shares.
6. The Fund is registered under the 1940 Act as an investment company,
and it will use its best efforts to maintain such registration and to comply
with the requirements of the 1940 Act.
7. At your request, the Fund will take such steps as may be necessary
and feasible to qualify shares for sale in states, territories or
dependencies of the United States of America, in the District of Columbia and
in foreign countries, in accordance with the laws thereof, and to renew or
extend any such qualification; provided however, that the Fund shall not be
required to qualify shares or to maintain the qualification of shares in any
state, territory, dependency, district or country where it shall deem such
qualification disadvantageous to the Fund.
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<PAGE>
8. You agree that:
(a) Neither you nor any of your officers will take any long or
short position in the shares of the Fund, but this provision shall not
prevent you or your officers from acquiring shares of the Fund for investment
purposes only;
(b) You shall furnish to the Fund any pertinent information
required to be inserted with respect to you as General Distributor within the
purview of the 1933 Act in any reports or registration required to be filed
with any governmental authority; and
(c) You will not make any representations inconsistent with the
information contained in the Registration Statement or Prospectus of the Fund
filed under the 1933 Act, as in effect from time to time.
9. The Fund will pay the cost of composition and printing of sufficient
copies of its Prospectus and financial statements as shall be required for
quarterly and annual distribution to its shareholders and the expense of
registering shares for sale under federal and state securities laws. You
shall pay the cost of printing the copies of the Fund's Prospectus and any
sales literature used by you in the public sale of the Fund's shares.
10. Unless earlier terminated pursuant to paragraph 11 hereof, this
Agreement shall remain in effect until two years from the date hereof. This
Agreement shall continue in effect from year to year thereafter provided that
such continuance shall be specifically approved at least annually (a) by the
Fund's Board of Trustees, including a vote of a majority of the Trustees who
are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of any such persons, cast in person at a meeting called for the
purpose of voting on such approval or (b) by the vote of the holders of a
majority of the outstanding voting securities of the Fund and by such a vote
of the Trustees.
11. This Agreement may be terminated (a) by the General Distributor at
any time without penalty by giving sixty days' written notice (which notice
may be waived by the Fund); or (b) by the Fund at any time without penalty
upon sixty days' written notice to the General Distributor (which notice may
be waived by the General Distributor), provided that such termination by the
Fund shall be directed or approved by the Trustees or by the vote of the
holders of a majority of the outstanding voting securities of the Fund.
12. This Agreement may not be amended or changed except in writing and
shall be binding upon and shall enure to the benefits of the parties hereto
and their respective successors, but this Agreement shall not be assigned by
either party and shall automatically terminated upon assignment.
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If the foregoing is in accordance with your understanding, kindly so
indicate by signing in the space provided below.
OCC ACCUMULATION TRUST
By: /s/ Deborah Kaback
-------------------
Title: Secretary
OCC DISTRIBUTORS
By: /s/ Peter Muratore
-------------------
Title: President
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<PAGE>
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
And
OCC DISTRIBUTORS
THIS AGREEMENT, made and entered into this 17 day of February 1998
by and among Sun Life Assurance Company of Canada (U.S.), a Delaware
corporation (hereinafter the "Company"), on its own behalf and on behalf of
each separate account of the Company named in Schedule 1 to this Agreement,
as may be amended from time to time (each account referred to as the
"Account"), OCC ACCUMULATION TRUST, an open-end diversified management
investment company organized under the laws of the State of Massachusetts
(hereinafter the "Fund") and OCC DISTRIBUTORS, a Delaware general partnership
(hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving
as the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement (hereinafter "Participating Insurance
Companies"); and
<PAGE>
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities &
Exchange Commission (alternatively referred to as the "SEC" or the
"Commission"), dated February 22, 1995 (File No. 812-9290), granting
Participating Insurance Companies and variable annuity separate accounts and
variable life insurance separate accounts relief from the provisions of
Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940,
as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Fund to be sold to and held by variable annuity separate accounts and
variable life insurance separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and qualified pension and retirement plans
(hereinafter the "Mixed and Shared Funding Exemptive Order");and
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain
variable annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors
of the Company under the insurance laws of the State of Delaware, to set
aside and invest assets attributable to the Contracts; and
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<PAGE>
WHEREAS, the Company has registered the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with the
SEC under the Securities Exchange Act of 1934, as amended (hereinafter the
"1934 Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios named
in Schedule 2 , as it may be amended from time to time, on behalf of the
Account to fund the Contracts and the Underwriter is authorized to sell such
shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares
of the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt
and acceptance by the Fund or its agent of the order for the shares of the
Fund. For purposes of this Section 1.1, the Company shall be the designee of
the Fund for receipt of such orders from each Account and receipt by such
designee shall constitute receipt by the Fund; provided that the Fund
receives notice of such order by 10:00 a.m. Eastern Time on the next
following Business Day. The Underwriter shall confirm to the Company the
receipt of such notice by 11:30 a.m. on such next following Business Day.
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<PAGE>
"Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value
pursuant to the rules of the SEC.
1.2. The Company shall pay for Fund shares on the next Business
Day after it places an order to purchase Fund shares in accordance with
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely
for purchase at the applicable net asset value per share by Participating
Insurance Companies and their separate accounts on those days on which the
Fund calculates its net asset value pursuant to rules of the SEC; provided,
however, that the Board of Trustees of the Fund (hereinafter the "Directors")
may refuse to sell shares of any Portfolio to any person, or suspend or
terminate the offering of shares of any Portfolio if such action is required
by law or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Directors, acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the Fund
will be sold only to Participating Insurance Companies and their separate
accounts, qualified pension and retirement plans or such other persons as are
permitted under applicable provisions of the Internal Revenue Code of 1986,
as amended, (the "Internal Revenue Code"), and regulations promulgated
thereunder, the sale to which will not impair the tax treatment currently
afforded the Contracts. No shares of any Portfolio will be sold to the
general public.
1.5. The Fund and the Underwriter will not sell Fund shares to
any insurance company or separate account unless an agreement containing
provisions substantially the same as
4
<PAGE>
Articles I, III, V, and VII of this Agreement are in effect to govern such
sales. The Fund shall make available upon written request from the Company
(i) a list of all other Participating Insurance Companies and (ii) a copy of
the Participation Agreement executed by any other Participating Insurance
Company.
1.6. The Fund agrees to redeem for cash, upon the Company's
request, any full or fractional shares of the Fund held by the Company,
executing such requests on a daily basis at the net asset value next computed
after receipt and acceptance by the Fund or its agent of the request for
redemption. For purposes of this Section 1.6, the Company shall be the
designee of the Fund for receipt of requests for redemption from each Account
and receipt by such designee shall constitute receipt by the Fund; provided
the Fund receives notice of request for redemption by 10:00 a.m. Eastern Time
on the next following Business Day. Payment shall be in federal funds
transmitted by wire to the Company's account as designated by the Company in
writing from time to time, on the same Business Day the Fund receives notice
of the redemption order from the Company except that the Fund reserves the
right to delay payment of redemption proceeds, but in no event may such
payment be delayed longer than the period permitted under Section 22(e) of
the 1940 Act. Neither the Fund nor the Underwriter shall bear any
responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds; the Company alone shall be responsible for such action.
If notification of redemption is received after 10:00 a.m. Eastern Time,
payment for redeemed shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of
the Portfolios named in Schedule 2 offered by the then current prospectus of
the Fund in accordance with the provisions of such prospectus.
5
<PAGE>
1.8. Issuance and transfer of the Fund's shares will be by book
entry only. Stock certificates will not be issued to the Company or any
Account. Purchase and redemption orders for Fund shares will be recorded in
an appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Fund shall furnish notice as soon as reasonably
practicable to the Company of any income, dividends or capital gain
distributions payable on the Fund's shares. The Company hereby elects to
receive all such dividends and distributions as are payable on the Portfolio
shares in the form of additional shares of that Portfolio. The Company
reserves the right to revoke this election and to receive all such dividends
and distributions in cash. The Fund shall notify the Company of the number
of shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Time, each business day.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are
or will be registered under the 1933 Act and that the Contracts will be
issued and sold in compliance with all applicable federal and state laws.
The Company further represents and warrants that it is an insurance company
duly organized and in good standing under applicable law and that it has
legally and validly established each Account as a segregated asset account
under applicable state
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<PAGE>
law and has registered each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as segregated investment
accounts for the Contracts, and that it will maintain such registration for
so long as any Contracts are outstanding. The Company shall amend the
registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time
as required in order to effect the continuous offering of the Contracts or as
may otherwise be required by applicable law. The Company shall register and
qualify the Contracts for sale in accordance with the securities laws of the
various states only if and to the extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently
and at the time of issuance will be treated as annuity contracts under
applicable provisions of the Internal Revenue Code and that it will maintain
such treatment and that it will notify the Fund and the Underwriter
immediately upon having a reasonable basis for believing that the Contracts
have ceased to be so treated or that they might not be so treated in the
future.
2.3. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund
is and shall remain registered under the 1940 Act for as long as the Fund
shares are sold. The Fund shall amend the registration statement for its
shares under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Fund shall
register and qualify the shares for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
7
<PAGE>
2.4. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code,
and that it will maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased
to so qualify or that it might not so qualify in the future.
2.5. The Fund represents that its investment objectives,
policies and restrictions comply with applicable state investment laws as
they may apply to the Fund. The Fund makes no representation as to whether
any aspect of its operations (including, but not limited to, fees and
expenses and investment policies) complies with the insurance laws and
regulations of any state. The Company alone shall be responsible for
informing the Fund of any insurance restrictions imposed by state insurance
laws which are applicable to the Fund. To the extent feasible and consistent
with market conditions, the Fund will adjust its investments to comply with
the aforementioned state insurance laws upon written notice from the Company
of such requirements and proposed adjustments, it being agreed and understood
that in any such case the Fund shall be allowed a reasonable period of time
under the circumstances after receipt of such notice to make any such
adjustment.
2.6. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent
that it decides to finance distribution expenses pursuant to Rule 12b-1, the
Fund undertakes to have its Board of Trustees, a majority of whom are not
interested persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
8
<PAGE>
2.7. The Underwriter represents and warrants that it is, and
will continue to be, a member in good standing of the National Association
of Securities Dealers, Inc., ("NASD") and is, and will continue to be,
registered as a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the Fund shares in accordance
with all applicable federal and state securities laws, including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and
validly existing under the laws of Massachusetts and that it does and will
comply with applicable provisions of the 1940 Act.
2.9. The Underwriter represents and warrants that the Fund's
Adviser, OpCap Advisors, is and shall remain duly registered under all
applicable federal and state securities laws and that the Adviser will
perform its obligations to the Fund in accordance with the laws of
Massachusetts and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and will continue to be at all times covered by a blanket fidelity bond
or similar coverage for the benefit of the Fund in an amount not less than
the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid
Bond includes coverage for larceny and embezzlement and is issued by a
reputable bonding company.
9
<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company, at the
Underwriter's expense, with as many copies of the Fund's current prospectus
as the Company may reasonably request for use with prospective contractowners
and applicants. The Underwriter shall print, at the Fund's or Underwriter's
expense, as many copies of said prospectus and any supplements thereto, as
necessary for distribution to existing contractowners or participants. If
requested by the Company in lieu thereof, the Fund shall provide such
documentation including a final copy of a current prospectus set in type at
the Fund's expense and other assistance as is reasonably necessary in order
for the Company at least annually (or more frequently if the Fund prospectus
is amended more frequently) to have the new prospectus for the Contracts and
the Fund's new prospectus printed together in one document. In such case the
Fund shall bear its share of expenses as described above.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or
alternatively from the Company (or, in the Fund's discretion, the Prospectus
shall state that such Statement is available from the Fund), and the
Underwriter (or the Fund) shall provide such Statement, at its expense, to
the Company and to any owner of or participant under a Contract who requests
such Statement or, at the Company's expense, to any prospective contractowner
and applicant who requests such statement.
3.3. The Fund, at its expense, shall provide the Company with
copies of its proxy material, if any, reports to shareholders and other
communications to shareholders in such
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<PAGE>
quantity as the Company shall reasonably require and shall bear the costs of
distributing them to existing contractowners or participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contractowners or
participants;
(ii) vote the Fund shares held in the Account in
accordance with instructions received from
contractowners or participants; and
(iii) vote Fund shares held in the Account for which no
timely instructions have been received, in the same
proportion as Fund shares of such Portfolio for which
instructions have been received from the Company's
contractowners or participants;
so long as and to the extent that the SEC continues to interpret the 1940 Act
to require pass through voting privileges for variable contractowners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. The Company shall
be responsible for assuring that each of its separate accounts participating
in the Fund calculates voting privileges in a manner consistent with this
section.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular as required, the Fund
will either provide for annual meetings or comply with Section 16(c) of the
1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when
applicable, 16(b). Further, the Fund will act in accordance with the SEC
interpretation of the requirements of Section 16(a) with respect to periodic
elections of directors and with whatever rules the Commission may promulgate
with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
11
<PAGE>
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or the Underwriter, each piece of sales literature or other
promotional material in which the Fund or the Fund's adviser or the
Underwriter is named, at least fifteen business days prior to its use. No
such material shall be used if the Fund or the Underwriter reasonably objects
in writing to such use within ten business days after receipt of such
material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the
Fund, or in sales literature or other promotional material approved by the
Fund or by the Underwriter, or in shareholder reports of the Fund except with
the permission of the Fund or the Underwriter. The Fund and the Underwriter
agree to respond to any request for approval within ten Business Days of
receipt of such request.
4.3. The Fund or the Underwriter shall furnish, or shall cause to
be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company or its separate account is
named, at least fifteen business days prior to its use. No such material
shall be used if the Company reasonably objects in writing to such use within
ten business days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information
or make any representations on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement or
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<PAGE>
prospectus for the Contracts, as such registration statement and prospectus
may be amended or supplemented from time to time, or in published reports for
each Account which are in the public domain or approved by the Company for
distribution to contractowners or participants, or in sales literature or
other promotional material approved by the Company, except with the
permission of the Company. The Company agrees to respond to any request for
approval within ten Business Days of receipt of such request.
4.5. The Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or
its shares, contemporaneously with the filing of such document with the SEC
or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature
or other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media), sales literature (I.E., any written communication
distributed or made generally available to
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<PAGE>
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any
other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Fund or
any Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then, subject to obtaining any required exemptive
orders or other regulatory approvals, the Underwriter may make payments to
the Company or to the underwriter for the Contracts if and in amounts agreed
to by the Underwriter in writing. Currently, no such payments are
contemplated.
5.2. All expenses incident to performance by the Fund of this
Agreement shall be paid by the Fund to the extent permitted by law. All Fund
shares will be duly authorized for issuance and registered in accordance with
applicable federal law and to the extent deemed advisable by the Fund, in
accordance with applicable state law, prior to sale. The Fund shall bear the
expenses for the cost of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration statement, Fund
proxy materials and reports, setting in type, printing and distributing the
prospectuses, the proxy materials and reports to existing shareholders and
contractowners, the preparation of all statements and notices required
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<PAGE>
by any federal or state law, all taxes on the issuance or transfer of the
Fund's shares, and any expenses permitted to be paid or assumed by the Fund
pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Internal Revenue Code and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Fund will comply
with Section 817(h) of the Internal Revenue Code and Treasury Regulation
1.817-5, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulations. In the event of a breach of
this Article VI by the Fund, it will take all reasonable steps (a) to notify
the Company of such breach and (b) to adequately diversify the Fund so as to
achieve compliance with the grace period afforded by Treasury Regulation
1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Fund (the "Fund Board") will
monitor the Fund for the existence of any material irreconcilable conflict among
the interests of the contractowners of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance,
15
<PAGE>
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments
of any Portfolio are being managed; (e) a difference in voting instructions
given by Participating Insurance Companies or by variable annuity contract
and variable life insurance contractowners; or (f) a decision by an insurer
to disregard the voting instructions of contractowners. The Board shall
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof. A majority of the Fund Board
shall consist of persons who are not "interested" persons of the Fund.
7.2. The Company has reviewed a copy of the Mixed and Shared
Funding Exemptive Order, and in particular, has reviewed the conditions to
the requested relief set forth therein. As set forth in the Mixed and Shared
Funding Exemptive Order, the Company will report any potential or existing
conflicts of which it is aware to the Fund Board. The Company agrees to
assist the Fund Board in carrying out its responsibilities under the Mixed
and Shared Funding Exemptive Order, by providing the Fund Board with all
information reasonably necessary for the Fund Board to consider any issues
raised. This includes, but is not limited to, an obligation by the Company
to inform the Fund Board whenever contractowner voting instructions are
disregarded. The Fund Board shall record in its minutes or other appropriate
records, all reports received by it and all action with regard to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a
majority of its disinterested Directors, that an irreconcilable material
conflict exists, the Company and other Participating Insurance Companies shall,
at their expense and to the extent reasonably practicable (as determined by a
majority of the disinterested Directors), take whatever steps are necessary to
16
<PAGE>
remedy or eliminate the irreconcilable material conflict, up to and
including: (1) withdrawing the assets allocable to some or all of the
separate accounts from the Fund or any Portfolio and reinvesting such assets
in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected contractowners and, as
appropriate, segregating the assets of any appropriate group (I.E., variable
annuity contractowners or variable life insurance contractowners, of one or
more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contractowners the option of making
such a change; and (2) establishing a new registered management investment
company or managed separate account.
7.4. If the Company's disregard of voting instructions could
conflict with the majority of contractowner voting instructions, and the
Company's judgment represents a minority position or would preclude a
majority vote, the Company may be required, at the Fund's election, to
withdraw the Account's investment in the Fund and terminate this Agreement
with respect to such Account. Any such withdrawal and termination must take
place within 60 days after the Fund gives written notice to the Company that
this provision is being implemented. Until the end of such 60 day period the
Underwriter and Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.5. If a particular state insurance regulator's decision applicable
to the Company conflicts with the majority of other state insurance regulators,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement with respect to such Account. Any such withdrawal and
termination must take place within 60 days after the Fund gives written notice
to the Company that this provision is being implemented. Until the end of such
60 day
17
<PAGE>
period the Underwriter and Fund shall continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine
whether any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund or OpCap Advisors be required to
establish a new funding medium for the Contracts. The Company shall not be
required by Section 7.3 to establish a new funding medium for the Contracts
if an offer to do so has been declined by vote of a majority of
contractowners materially adversely affected by the irreconcilable material
conflict.
7.7. The Company shall at least annually submit to the Fund Board
such reports, materials or data as the Fund Board may reasonably request so
that the Fund Board may fully carry out the duties imposed upon it as
delineated in the Mixed and Shared Funding Exemptive Order, and said reports,
materials and data shall be submitted more frequently if deemed appropriate
by the Fund Board.
7. 8. If and to the extent that Rule 6e-2 and Rule 6e-3 (T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3 (T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement shall
18
<PAGE>
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund,
the Underwriter, and each of the Fund's or the Underwriter's directors,
officers, employees or agents and each person, if any, who controls or is an
"associated person" of the Fund or the Underwriter within the meaning of such
terms under the federal securities laws (collectively, the "indemnified
parties" for purposes of this Section 8.1) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Company) or litigation (including reasonable legal and
other expenses), to which the indemnified parties may become subject under
any statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Contracts or contained in
the Contracts or sales literature or other promotional
material for the Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances in which they were made; provided that this
agreement to indemnify shall not apply as to any
indemnified party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Company by
or on behalf of the Fund for use in the registration
statement, prospectus or statement of additional
information for the Contracts or in the Contracts or sales
literature or other promotional material for the Contracts
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
19
<PAGE>
(ii) arise out of or as a result of statements or representations
by or on behalf of the Company (other than statements or
representations contained in the Fund registration
statement, Fund prospectus, Fund statement of additional
information or sales literature or other promotional
material of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund
registration statement, Fund prospectus, statement of
additional information or sales literature or other
promotional material of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were
made, if such a statement or omission was made in reliance
upon and in conformity with information furnished to the
Fund by or on behalf of the Company or persons under its
control; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any
payments under the terms of this Agreement; or
(v) arise out of any material breach of any representation
and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach by
the Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
20
<PAGE>
(c) The indemnified parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the
operation of the Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
(a) The Underwriter, on its own behalf and on behalf of the Fund,
agrees to indemnify and hold harmless the Company and each of its directors,
officers, employees or agents and each person, if any, who controls or is an
"associated person" of the Company within the meaning of such terms under the
federal securities laws (collectively, the "indemnified parties" for purposes
of this Section 8.2) against any and all losses, costs, expenses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Underwriter) or litigation (including reasonable legal and
other expenses) to which the indemnified parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses,
costs, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Fund or sales literature or
other promotional material of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made;
provided that this agreement to indemnify shall not apply
as to any indemnified party if such statement or omission
or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for use
in the registration statement, prospectus or statement of
additional information for the Fund or in sales literature
or other promotional material of the Fund (or any amendment
or supplement thereto) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
21
<PAGE>
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Contracts or in the Contract registration
statement, the Contract prospectus, statement of additional
information, or sales literature or other promotional
material for the Contracts or of the Fund not supplied by
the Underwriter or the Fund or persons under the control
of the Underwriter or the Fund respectively) or wrongful
conduct of the Underwriter or the Fund or persons under the
control of the Underwriter or the Fund respectively, with
respect to the sale or distribution of the Contracts or
Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, statement of additional information
or sales literature or other promotional material covering
the Contracts (or any amendment thereof or supplement
thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading in light of the circumstances in which they were
made, if such statement or omission was made in reliance
upon and in conformity with information furnished to the
Company by or on behalf of the Underwriter or the Fund or
persons under the control of the Underwriter or the Fund; or
(iv) arise as a result of any failure by the Fund or the
Underwriter to provide the services and furnish the
materials under the terms of this Agreement (including a
failure, whether unintentional or in good faith or
otherwise, to (i) comply with the diversification
requirements and procedures related thereto specified in
Article VI of this Agreement except if such failure is a
result of the Company's failure to comply with the
notification procedures specified in Article VI; and (ii)
to inform the Company of the correct net asset value per
share of each Portfolio on a timely basis sufficient to
ensure the timely execution of all purchase and redemption
orders at the correct net asset value per share); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter or
the Fund in this Agreement or arise out of or result from
any other material breach of this Agreement by the
Underwriter or the Fund;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter
may otherwise have.
22
<PAGE>
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Underwriter of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Contracts or the operation of the Account.
8.3. INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article
VIII ("indemnifying party" for the purpose of this Section 8.3) shall not be
liable under the indemnification provisions of this Article VIII with respect to
any claim made against a party entitled to indemnification under this Article
VIII ("indemnified party" for the purpose of this Section 8.3) unless such
indemnified party shall have notified the indemnifying party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provision of this Article VIII, except to the extent
that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice. In case any such action is brought against the
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall be
entitled to assume the defense thereof, with
23
<PAGE>
counsel satisfactory to the party named in the action. After notice from the
indemnifying party to the indemnified party of the indemnifying party's
election to assume the defense thereof, the indemnified party shall bear the
fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnifying party and the indemnified party
shall have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties) include both
the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but
if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
8.4. CONTRIBUTION
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Article VIII is
due in accordance with its terms but for any reason is held to be unenforceable
with respect to a party entitled to indemnification ("indemnified party" for
purposes of this Section 8.4) pursuant to the terms of this Article VIII, then
each party
24
<PAGE>
obligated to indemnify pursuant to the terms of this Article VIII shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and litigations in such
proportion as is appropriate to reflect the relative benefits received by the
parties to this Agreement in connection with the offering of Fund shares to
the Account and the acquisition, holding or sale of Fund shares by the
Account, or if such allocation is not permitted by applicable law, in such
proportions as are appropriate to reflect the relative net benefits referred
to above but also the relative fault of the parties to this Agreement in
connection with any actions that lead to such losses, claims, damages,
liabilities or litigations, as well as any other relevant equitable
considerations.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
25
<PAGE>
(a) at the option of any party upon one-year advance written
notice to the other parties unless otherwise agreed in a separate written
agreement among the parties; or
(b) at the option of the Company if shares of the Portfolios
delineated in Schedule 2 are not reasonably available to meet the requirements
of the Contracts as determined by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance commission
of any state or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the administration of
the Contracts, the operation of the Account, or the purchase of the Fund shares,
which would have a material adverse effect on the Company's ability to perform
its obligations under this Agreement; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund or the Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body, which
would have a material adverse effect on the Fund's or the Underwriter's ability
to perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will
give 30 days prior written notice to the Fund of the date of any proposed vote
or other action taken to replace the Fund's shares; or
26
<PAGE>
(f) at the option of the Company or the Fund upon a determination
by a majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the interests of
(i) all contractowners of variable insurance products of all separate accounts
or (ii) the interests of the Participating Insurance Companies investing in the
Fund as delineated in Article VII of this Agreement; or
(g) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Internal Revenue
Code, or under any successor or similar provision, or if the Company reasonably
believes that the Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
(i) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company determines in
its sole judgment exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a material adverse impact
upon the business and operations of the Company; or
(k) at the option of the Fund or Underwriter, if the Fund or
Underwriter respectively, shall determine in its sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its business,
operations or financial condition since the date
27
<PAGE>
of this Agreement or is the subject of material adverse publicity which is
likely to have a material adverse impact upon the business and operations of
the Fund or Underwriter; or
(l) at the option of the Fund in the event any of the Contracts
are not issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without notice.
10.2. NOTICE REQUIREMENT
(a) In the event that any termination of this Agreement is based
upon the provisions of Article VII, such prior written notice shall be given in
advance of the effective date of termination as required by such provisions.
(b) In the event that any termination of this Agreement is based
upon the provisions of Sections 10.1(b) - (d) or 10.1(g) - (i), prompt written
notice of the election to terminate this Agreement for cause shall be furnished
by the party terminating the Agreement to the non-terminating parties, with said
termination to be effective upon receipt of such notice by the non-terminating
parties.
(c) In the event that any termination of this Agreement is based
upon the provisions of Sections 10.1(j) or 10.1(k), prior written notice of the
election to terminate this Agreement for cause shall be furnished by the party
terminating this Agreement to the non-terminating parties. Such prior written
notice shall be given by the party terminating this Agreement to the
non-terminating parties at least 30 days before the effective date of
termination.
28
<PAGE>
10.3. It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no
reason.
10.4. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, and subject to Section 1.3 of this Agreement,
the Company may require the Fund and the Underwriter to, continue to make
available additional shares of the Fund for so long after the termination of
this Agreement as the Company desires pursuant to the terms and conditions of
this Agreement as provided in paragraph (b) below, for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter referred to
as "Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.4 shall not apply to any terminations under Article VII and
the effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
(b) If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions of
this Agreement shall remain in effect except for Section 10.1(a) and thereafter
the Fund, the Underwriter, or the Company may terminate the Agreement, as so
continued pursuant to this Section 10.4, upon written notice to the other party,
such notice to be for a period that is reasonable under the circumstances but,
if given by the Fund or Underwriter, need not be for more than 90 days.
10.5. Except as necessary to implement contractowner initiated or
approved transactions, or as required by state insurance laws or regulations,
the Company shall not redeem
29
<PAGE>
Fund shares attributable to the Contracts (as opposed to Fund shares
attributable to the Company's assets held in the Account) and the Company
shall not prevent contractowners from allocating payments to a Portfolio that
was otherwise available under the Contracts, in each case until 90 days (or
such shorter period of time as the parties hereto may agree upon) after the
Company shall have notified the Fund or Underwriter of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be deemed duly given only if sent by hand, evidenced by
written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party. All
notices shall be deemed given three business days after the date received or
rejected by the addressee.
If to the Fund:
Mr. Bernard H. Garil
President
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
Margaret Hankard
Senior Associate Counsel
Sun Life Assurance Company of Canada (U.S.)
Copley Place, Suite 200
Boston, MA 02117
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC Distributors
30
<PAGE>
200 Liberty Street
New York, NY 10281
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Directors, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto
shall treat as confidential all information reasonably identified as such in
writing by any other party hereto (including without limitation the names and
addresses of the owners of the Contracts) and, except as contemplated by this
Agreement, shall not disclose, disseminate or utilize such confidential
information until such time as it may come into the public domain without the
express prior written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
31
<PAGE>
12.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund.
12.10 During ordinary business hours, the Fund and the Underwriter
shall afford the Company, directly or through its authorized representatives,
reasonable access to all files, books, records and other materials of the Fund
or the Underwriter, as applicable, which relate, directly or indirectly, to
transactions arising in connection with this Agreement and to make available
appropriate personnel familiar with such items for the purpose of explaining the
form and content of such items. This Section 12.10 shall survive the
termination of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative as of the date and year first written above.
COMPANY:
SUN LIFE ASSURANCE COMPANY OF
CANADA (U.S.)
SEAL By: /s/ Robert K. Leach
------------------------
FUND:
OCC ACCUMULATION TRUST
SEAL By: /s/ Bernard H. Garil
------------------------
UNDERWRITER:
OCC DISTRIBUTORS
By: /s/ Thomas E. Duggan
------------------------
33
<PAGE>
SCHEDULE 1
Participation Agreement
Among
OCC Accumulation Trust, Sun Life Assurance Company of Canada (U.S.)
and
OCC Distributors
The following separate accounts of Sun Life Assurance Company of Canada
(U.S.) are permitted in accordance with the provisions of this Agreement to
invest in Portfolios of the Fund shown in Schedule 2:
Sun Life Assurance Company of Canada (U.S.) Variable Account F
February 17, 1998
<PAGE>
SCHEDULE 2
Participation Agreement
Among
OCC Accumulation Trust, Sun Life Assurance Company of Canada (U.S.)
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the OCC Accumulation Trust:
Mid Cap Portfolio
Equity Portfolio
Small Cap Portfolio
February 17, 1998
<PAGE>
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
TRANSAMERICA LIFE INSURANCE COMPANY OF NEW YORK
And
OCC DISTRIBUTORS
And
OpCap Advisors
THIS AGREEMENT, made and entered into this 15th day of December, 1997,
by and among Transamerica Life Insurance Company of New York, a New York
Corporation (hereinafter the "Company"), on its own behalf and on behalf of
each separate account of the Company named in Schedule 1 to this Agreement, as
may be amended from time to time (each account referred to as the "Account"),
OCC ACCUMULATION TRUST, an open-end diversified management investment company
organized under the laws of the State of Massachusetts (hereinafter the "Fund"),
OpCap Advisors (hereinafter the "Adviser") and OCC DISTRIBUTORS, a Delaware
general partnership (hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement (hereinafter "Participating Insurance Companies");
and
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities & Exchange
Commission (alternatively referred to as the "SEC" or the "Commission"), dated
February 22, 1995 (File No. 812-9290), granting Participating Insurance
Companies and variable annuity
<PAGE>
separate accounts and variable life insurance separate accounts relief from the
provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity separate accounts and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and qualified pension and retirement plans (hereinafter the
"Mixed and Shared Funding Exemptive Order");and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity or life insurance contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of the State of North Carolina, to set aside
and invest assets attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit investment
trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios named in
Schedule 2 on behalf of the Account to fund the Contracts and the Underwriter is
authorized to sell such shares to unit investment trusts such as the Account at
net asset value;
WHEREAS, the Company may contract with an Administrator to perform
certain services with regard to the Contracts and, therefore, certain
obligations and services of the Adviser and/or Trust should be directed to the
Administrator, as directed by the Company;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
<PAGE>
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which the Company or its Administrator orders on behalf of the Account,
executing such orders on a daily basis at the net asset value next computed
after receipt and acceptance by the Fund or its agent of the order for the
shares of the Fund. For purposes of this Section 1.1, the Company or its
Administrator shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 10:00 a.m. Eastern Time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading.
1.2. The Company shall pay for Fund shares on the next Business Day after
it places an order to purchase Fund shares in accordance with Section 1.1
hereof. Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts each Business Day; provided, however, that
the Board of Trustees of the Fund (hereinafter the "Directors") may refuse to
sell shares of any Portfolio to any person, or suspend or terminate the offering
of shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Directors,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the Fund shall be
sold only to Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are permitted
under applicable provisions of the Internal Revenue Code of 1986, as amended,
(the "Internal Revenue Code"), and regulations promulgated thereunder, the sale
to which will not impair the tax treatment currently afforded the contracts. No
shares of any Portfolio shall be sold to the general public.
1.5. The Fund and the Underwriter shall not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VI and VII of this Agreement are
in effect to govern such sales. The Fund shall make available upon written
request from the Company (i) a list of all other Participating Insurance
Companies and (ii) a copy of the Participation Agreement executed by any other
Participating Insurance Company.
1.6. The Fund agrees to redeem for cash, upon the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company or its Administrator shall be the designee of
the Fund for receipt of requests for redemption from each Account and receipt by
such designee shall constitute receipt by
<PAGE>
the Fund; provided the Fund receives notice of request for redemption by 10:00
a.m. Eastern Time on the next following Business Day. Payment shall be in
federal funds transmitted by wire to the Company's account as designated by the
Company in writing from time to time, on the same Business Day the Fund receives
notice of the redemption order from the Company except that the Fund reserves
the right to delay payment of redemption proceeds, but in no event may such
payment be delayed longer than the period permitted under Section 22(e) of the
1940 Act. Neither the Fund nor the Underwriter shall bear any responsibility
whatsoever for the proper disbursement or crediting of redemption proceeds to
Contract owners; the Company alone shall be responsible for such action. If
notification of redemption is received after 10:00 a.m. Eastern Time, payment
for redeemed shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the Contracts shall be invested in the
Fund, or in the Company's general account; provided that such amounts may also
be invested in an investment company other than the Fund if (a) such other
investment company, or series thereof, has investment objectives or policies
that are substantially different from the investment objectives and policies of
the Portfolios of the Fund named in Schedule 2; or (b) the Company gives the
Fund and the Underwriter 45 days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment company was available as a funding vehicle for the
Contracts prior to the date of this Agreement and the Company so informs the
Fund and Underwriter prior to their signing this Agreement; or (d) the Fund or
Underwriter consents in writing to the use of such other investment company.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Fund shall furnish notice to Company or its Administrator by
Company, two days prior to the distribution of any income, dividends or capital
gain distributions payable on the Fund's shares. The Company hereby elects to
receive all such dividends and distributions as are payable on the Portfolio
shares in the form of additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such dividends and
distributions in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions the day of
distribution when it reports the Portfolio's NAV pursuant to Section 1.10.
1.10. The Fund shall report the net asset value per share for each
Portfolio to the Company or its Administrator, as directed by Company, on a
daily basis as soon as reasonably practical after the net asset value per share
is calculated and shall use its
<PAGE>
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Time, each business day. If the Fund provides materially incorrect
share net asset value information, the Fund shall make an adjustment to the
number of shares purchased or redeemed for the Accounts to reflect the correct
net asset value per share. Any material error in the calculation or reporting
of net asset value per share, dividend or capital gains information shall be
reported promptly upon discovery to the Company.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance with all applicable federal and state laws. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account as a segregated asset account under applicable state
law and has registered each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as segregated investment accounts
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding. The Company shall amend the registration
statement under the 1933 Act for the Contracts and the registration statement
under the 1940 Act for the Account from time to time as required in order to
effect the continuous offering of the Contracts or as may otherwise be required
by applicable law. The Company shall register and qualify the Contracts for
sale in accordance with the securities laws of the various states only if and to
the extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and at the
time of issuance will be treated as life insurance or annuity contracts under
Sections 7702 or 72 of the Internal Revenue Code and that it will maintain such
treatment and that it will notify the Fund and the Underwriter immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.3. The Fund and Adviser represent and warrant that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund is
and shall remain registered under the 1940 Act for as long as the Fund shares
are sold. The Fund shall amend the registration statement for its shares under
the 1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of its shares. The Fund shall register and qualify the
shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by the Fund or the Underwriter.
2.4. The Fund and Adviser represent and warrant that the Fund and each of
the Portfolios is currently qualified as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code, and that they will maintain such
qualification (under Subchapter
<PAGE>
M or any successor or similar provision) (or correct any failure during the
applicable grace period) and that they will notify the Company immediately upon
having a reasonable basis for believing that it has ceased to so qualify or that
it might not so qualify in the future.
2.5. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Fund. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws and regulations of any state. The
Company alone shall be responsible for informing the Fund of any insurance
restrictions imposed by state insurance laws which are applicable to the Fund.
To the extent feasible and consistent with market conditions, the Fund will
adjust its investments to comply with the aforementioned state insurance laws
upon written notice from the Company of such requirements and proposed
adjustments, it being agreed and understood that in any such case the Fund shall
be allowed a reasonable period of time under the circumstances after receipt of
such notice to make any such adjustment.
2.6. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to
have its Board of Trustees, a majority of whom are not interested persons of the
Fund, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the National Association of Securities Dealers, Inc., ("NASD") and
is registered as a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the Fund shares in accordance with
all applicable federal and state securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply with
applicable provisions of the 1940 Act.
2.9. The Underwriter and the Adviser represent and warrant that Adviser
is and shall remain duly registered under all applicable federal and state
securities laws and that the Adviser will perform its obligations to the Fund in
accordance with the laws of Massachusetts and any applicable state and federal
securities laws.
2.10. The Fund, Adviser and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid
<PAGE>
Bond includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less than
$5 million. The aforesaid includes coverage for larceny and embezzlement and is
issued by a reputable bonding company. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company, at the Company's expense,
with as many copies of the current prospectuses for the Portfolios listed on
Schedule 2 as the Company may reasonably request for use with prospective
contractowners and applicants. The Underwriter shall print and distribute, at
the Fund's or Underwriter's expense, as many copies of said prospectuses as
necessary for distribution to existing contractowners or participants. If
requested by the Company in lieu thereof, the Fund shall provide such
documentation including a final copy of a current prospectus set in type at the
Fund's expense and other assistance as is reasonably necessary in order for the
Company at least annually (or more frequently if the said prospectuses are
amended more frequently) to have the new prospectus for the Contracts and the
Portfolios' new prospectuses printed together in one document. In such case the
Fund shall bear its share of expenses as described above.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or alternatively from
the Company (or, in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund), and the Underwriter (or the Fund) shall
provide such Statement, at its expense, to the Company and to any owner of or
participant under a Contract who requests such Statement or, at the Company's
expense, to any prospective contractowner and applicant who requests such
statement.
3.3. The Fund, at its expense, shall provide the Company with copies of
proxy material, if any, reports to shareholders and other communications to
shareholders with regard to the Portfolios listed in Schedule 2 in such quantity
as the Company shall reasonably require and shall bear the costs of distributing
them to existing contractowners or participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contractowners or
participants;
<PAGE>
(ii) vote the Fund shares held in the Account in accordance
with instructions received from contractowners or participants; and
(iii) vote Fund shares held in the Account for which no timely
instructions have been received, in the same proportion as Fund shares of such
Portfolio for which instructions have been received from the Company's
contractowners or participants;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for variable contractowners. The Company
reserves the right to vote Fund shares held in any segregated asset account in
its own right, to the extent permitted by law. Participating Insurance
Companies shall be responsible for assuring that each of their separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular as required, the Fund will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the SEC interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Fund's adviser or the Underwriter is named, at
least five business days prior to its use. No such material shall be used if
the Fund or the Underwriter reasonably objects in writing to such use within
fifteen business days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or by
the Underwriter, except with the permission of the Fund or the Underwriter. The
Fund and the Underwriter agree to respond to any request for approval on a
prompt and timely basis.
4.3. The Fund or the Underwriter shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or its separate account is
named, at least fifteen business
<PAGE>
days prior to its use. No such material shall be used if the Company reasonably
objects in writing to such use within fifteen business days after receipt of
such material.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to contractowners or participants,
or in sales literature or other promotional material approved by the Company,
except with the permission of the Company. The Company agrees to respond to any
request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE V. Fees and Expenses
<PAGE>
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then, subject to obtaining any required exemptive orders or other
regulatory approvals, the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund of this Agreement
shall be paid by the Fund to the extent permitted by law. All Fund shares will
be duly authorized for issuance and registered in accordance with applicable
federal law and to the extent deemed advisable by the Fund, in accordance with
applicable state law, prior to sale. The Fund shall bear the expenses for the
cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, Fund proxy materials
and reports, setting in type, printing and distributing the prospectuses, the
proxy materials and reports to existing shareholders and contractowners, the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Fund's shares, and any expenses
permitted to be paid or assumed by the Fund pursuant to a plan, if any, under
Rule 12b-1 under the 1940 Act.
5.3 Adviser will quarterly reimburse the Company certain of the
administrative costs and expenses incurred by the Company as a result of
operations necessitated by the beneficial ownership by Contract owners of shares
of the Portfolios of the Fund, equal to 0.15% per annum of the average daily net
assets of the Fund attributable to variable life or variable annuity contracts
offered by the Company or its affiliated up to $300 million and 0.20% per annum
of the average daily net assets of the Fund attributable to such Contracts in
excess of $300 million but less than $600 million and 0.25% per annum of the
average daily net assets of the Fund attributable to such Contracts in excess of
$600 million. In no event shall such fee be paid by the Fund, its shareholders
or by the Contract holders.
ARTICLE VI. Diversification
6.1. The Fund and the Adviser represent and warrant that the Fund will at
all times invest money from the Contracts in such a manner as to ensure that the
Contracts will be treated as variable contracts under the Internal Revenue Code
and the regulations issued thereunder. Without limiting the scope of the
foregoing, the Fund will comply with Section 817(h) of the Internal Revenue Code
and Treasury Regulation 1.817-5, relating to the diversification requirements
for variable annuity, endowment, or life insurance contracts and any amendments
or other modifications to such Section or Regulations. In the event of a breach
of this Article VI by the Fund, it will take all reasonable steps (a) to notify
the Company of such breach and (b) to adequately diversify the Fund so as to
achieve compliance with the grace period afforded by Treasury Regulation
1.817-5.
<PAGE>
ARTICLE VII. Potential Conflicts
7.1. The Board of Trustees of the Fund (the "Fund Board") will monitor the
Fund for the existence of any material irreconcilable conflict among the
interests of the contractowners of all separate accounts investing in the Fund.
An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and variable
life insurance contractowners; or (f) a decision by an insurer to disregard the
voting instructions of contractowners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof. A majority of the Fund Board shall consist of persons who
are not "interested" persons of the Fund.
7.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth therein. As set forth in the Mixed and Shared Funding
Exemptive Order, the Company will report any potential or existing conflicts of
which it is aware to the Fund Board. The Company agrees to assist the Fund
Board in carrying out its responsibilities under the Mixed and Shared Funding
Exemptive Order, by providing the Fund Board with all information reasonably
necessary for the Fund Board to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Fund Board
whenever contractowner voting instructions are disregarded. The Fund Board
shall record in its minutes or other appropriate records, all reports received
by it and all action with regard to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a majority of
its disinterested Directors, that an irreconcilable material conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contractowners and, as appropriate, segregating the assets of
any appropriate group (i.e., variable annuity contractowners or variable life
insurance contractowners, of one or more Participating Insurance
<PAGE>
Companies) that votes in favor of such segregation, or offering to the affected
contractowners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4. If the Company's disregard of voting instructions could conflict with
the majority of contractowner voting instructions, and the Company's judgment
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to such Account. Any such
withdrawal and termination must take place within 60 days after the Fund gives
written notice to the Company that this provision is being implemented. Until
the end of such 60 day period the Underwriter and Fund shall continue to accept
and implement orders by the Company for the purchase (and redemption) of shares
of the Fund.
7.5. If a particular state insurance regulator's decision applicable to
the Company conflicts with the majority of other state insurance regulators,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement with respect to such Account. Any such withdrawal and
termination must take place within 60 days after the Fund gives written notice
to the Company that this provision is being implemented. Until the end of such
60 day period the Underwriter and Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund or Quest Advisors be required to establish a new
funding medium for the Contracts. The Company shall not be required by Section
7.3 to establish a new funding medium for the Contracts if an offer to do so has
been declined by vote of a majority of contractowners materially adversely
affected by the irreconcilable material conflict.
7.7. The Company shall at least annually submit to the Fund Board such
reports, materials or data as the Fund Board may reasonably request so that the
Fund Board may fully carry out the duties imposed upon it as delineated in the
Mixed and Shared Funding Exemptive Order, and said reports, materials and data
shall be submitted more frequently if deemed appropriate by the Fund Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3 (T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may
<PAGE>
be necessary to comply with Rules 6e-2 and 6e-3 (T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5,
7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to
the extent that terms and conditions substantially identical to such Sections
are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Underwriter, and each of the Fund's or the Underwriter's directors,
officers, employees or agents and each person, if any, who controls or is
associated with the Fund or the Underwriter within the meaning of such terms
under the federal securities laws (collectively, the "indemnified parties" for
purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation (including reasonable legal and other expenses), to
which the indemnified parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the registration
statement, prospectus or statement of additional information for the Contracts
or contained in the Contracts or sales literature or other promotional material
for the Contracts (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which they
were made; provided that this agreement to indemnify shall not apply as to any
indemnified party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to the Company by or on behalf of the Fund for use in the registration
statement, prospectus or statement of additional information for the Contracts
or in the Contracts or sales literature or other promotional material for the
Contracts (or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations by or on behalf of the Company (other than statements or
representations contained in the Fund registration statement, Fund prospectus,
Fund statement of additional information or sales literature or other
promotional material of the Fund not supplied by the Company or persons under
its control) or wrongful conduct of the Company or persons under its control,
with respect to the sale or distribution of the Contracts or Fund shares; or
<PAGE>
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund registration statement, Fund
prospectus, statement of additional information or sales literature or other
promotional material of the Fund or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if such a statement or
omission was made in reliance upon and in conformity with information furnished
to the Fund by or on behalf of the Company or persons under its control; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments under the terms
of this Agreement; or
(v) arise out of any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or result
from any other material breach by the Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. Indemnification By the Underwriter
(a) The Underwriter and Adviser, on their own behalf and on behalf of
the Fund, joint and severally agree to indemnify and hold harmless the Company
and each of its directors, officers, employees or agents and each person, if
any, who controls or is associated with the Company within the meaning of such
terms under the federal securities laws (collectively, the "indemnified parties"
for purposes of this Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Underwriter or Adviser) or litigation (including reasonable legal and other
expenses) to which the indemnified parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement, prospectus or statement of additional information for the Fund or
sales literature or other promotional
<PAGE>
material of the Fund (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which they
were made; provided that this agreement to indemnify shall not apply as to any
indemnified party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to the Underwriter or Fund by or on behalf of the Company for use in the
registration statement, prospectus or statement of additional information for
the Fund or in sales literature or other promotional material of the Fund (or
any amendment or supplement thereto) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Contracts or in the Contract or Fund registration statement, the Contract or
Fund prospectus, statement of additional information, or sales literature or
other promotional material for the Contracts or of the Fund not supplied by the
Underwriter or the Fund or persons under the control of the Underwriter or the
Fund respectively) or wrongful conduct of the Underwriter or the Fund or persons
under ?the control of the Underwriter or the Fund respectively, with respect to
the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement, prospectus,
statement of additional information or sales literature or other promotional
material covering the Contracts (or any amendment thereof or supplement
thereto), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading in light of the circumstances in which they were made, if
such statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Underwriter or the
Fund or persons under the control of the Underwriter or the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements and procedures related thereto
specified in Article VI or the Sub-Chapter M qualification specified in Section
2.4 of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter or the Fund in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Underwriter or the Fund; or
(vi) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset value per share or
dividend or capital gain distribution rate;
<PAGE>
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Underwriter of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Contracts or the operation of the Account.
8.3. Indemnification Procedure
Any person obligated to provide indemnification under this Article VIII
("indemnifying party" for the purpose of this Section 8.3) shall not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("indemnified party" for the purpose of this Section 8.3) unless such
indemnified party shall have notified the indemnifying party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provision of this Article VIII, except to the extent
that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice. In case any such action is brought against the
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the indemnifying party to the
indemnified party of the indemnifying party's election to assume the defense
thereof, the indemnified party shall bear the fees and expenses of any
additional counsel retained by it, and the indemnifying party will not be liable
to such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation, unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled
<PAGE>
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
8.4. Contribution
In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in this Article VIII is due in accordance
with its terms but for any reason is held to be unenforceable with respect to a
party entitled to indemnification ("indemnified party" for purposes of this
Section 8.4) pursuant to the terms of this Article VIII, then each party
obligated to indemnify pursuant to the terms of this Article VIII shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and litigations in such proportion
as is appropriate to reflect the relative benefits received by the parties to
this Agreement in connection with the offering of Fund shares to the Account and
the acquisition, holding or sale of Fund shares by the Account, or if such
allocation is not permitted by applicable law, in such proportions as is
appropriate to reflect the relative net benefits referred to above but also the
relative fault of the parties to this Agreement in connection with any actions
that lead to such losses, claims, damages, liabilities or litigations, as well
as any other relevant equitable considerations.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to the Mixed and Shared Funding Exemptive Order) and
the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one-year advance written notice to
the other parties unless otherwise agreed in a separate written agreement among
the parties; or
<PAGE>
(b) at the option of the Company if shares of the Portfolios
delineated in Schedule 2 are not reasonably available to meet the requirements
of the Contracts as determined by the Company; or
(c) at the option of the Fund upon institution of formal proceedings
against the Company by the NASD, the SEC, the insurance commission of any state
or any other regulatory body regarding the Company's duties under this Agreement
or related to the sale of the Contracts, the administration of the Contracts,
the operation of the Account, or the purchase of the Fund shares, which would
have a material adverse effect on the Company's ability to perform its
obligations under this Agreement; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund or the Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body, which
would have a material adverse effect on the Fund's or the Underwriter's ability
to perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will
give 30 days prior written notice to the Fund of the date of any proposed vote
or other action taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the interests of
(i) all contractowners of variable insurance products of all separate accounts
or (ii) the interests of the Participating Insurance Companies investing in the
Fund as delineated in Article VII of this Agreement; or
(g) at the option of the Company if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code, or
under any successor or similar provision, or if the Company reasonably believes
that the Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
(i) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith, that either the Fund or the Underwriter
has suffered a material adverse change in its business, operations or financial
condition since the date of
<PAGE>
this Agreement or is the subject of material adverse publicity which is likely
to have a material adverse impact upon the business and operations of the
Company; or
(k) at the option of the Fund or Underwriter, if the Fund or
Underwriter respectively, shall determine in its sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Fund or Underwriter; or
(l) at the option of the Fund in the event any of the Contracts are
not issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without notice.
10.2. Notice Requirement
(a) In the event that any termination of this Agreement is based upon
the provisions of Article VII, such prior written notice shall be given in
advance of the effective date of termination as required by such provisions.
(b) In the event that any termination of this Agreement is based upon
the provisions of Sections 10.1(b) - (d) or 10.1(g) - (i), prompt written notice
of the election to terminate this Agreement for cause shall be furnished by the
party terminating the Agreement to the non-terminating parties, with said
termination to be effective upon receipt of such notice by the non-terminating
parties.
(c) In the event that any termination of this Agreement is based upon
the provisions of Sections 10.1(j) or 10.1(k), prior written notice of the
election to terminate this Agreement for cause shall be furnished by the party
terminating this Agreement to the non-terminating parties. Such prior written
notice shall be given by the party terminating this Agreement to the
non-terminating parties at least 30 days before the effective date of
termination.
10.3. It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no
reason.
10.4. Effect of Termination
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement, and subject to Section 1.3 of this Agreement,
the Company may require the Fund and the Underwriter to, continue to make
available additional shares of the Fund for so long after the termination of
this Agreement as the Company desires pursuant to the terms and conditions of
this Agreement as provided in paragraph (b) below, for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter referred to
as "Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
<PAGE>
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.4 shall not apply to any terminations under Article VII and
the effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
(b) If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions of
this Agreement shall remain in effect except for Section 10.1(a) and thereafter
the Fund, the Underwriter, or the Company may terminate the Agreement, as so
continued pursuant to this Section 10.4, upon written notice to the other party,
such notice to be for a period that is reasonable under the circumstances but,
if given by the Fund or Underwriter, need not be for more than 90 days.
10.5. Except as necessary to implement contractowner initiated or approved
transactions, or as required by state insurance laws or regulations, the Company
shall not redeem Fund shares attributable to the Contracts (as opposed to Fund
shares attributable to the Company's assets held in the Account), and the
Company shall not prevent contractowners from allocating payments to a Portfolio
that was otherwise available under the Contracts, until 90 days after the
Company shall have notified the Fund or Underwriter of its intention to do so.
ARTICLE XI. Notices
Any notice shall be deemed duly given only if sent by hand, evidenced by
written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party. All
notices shall be deemed given three business days after the date received or
rejected by the addressee.
If to the Fund:
Mr. Bernard H. Garil
President
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
[Name]
[Title]
[Co. Name]
[Address]
If to the Underwriter:
<PAGE>
Mr. Thomas E. Duggan
Secretary
OCC Distributors
200 Liberty Street
New York, NY 10281
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Directors, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto shall
treat as confidential all information reasonably identified as such in writing
by any other party hereto (including without limitation the names and addresses
of the owners of the Contracts) and, except as contemplated by this Agreement,
shall not disclose, disseminate or utilize such confidential information until
such time as it may come into the public domain without the express prior
written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6. This Agreement shall not be assigned by any party hereto without the
prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
<PAGE>
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and behalf by its duly authorized representative as
of the date and year first written above.
Company:
TRANSAMERICA LIFE INSURANCE COMPANY OF NEW YORK
SEAL By:
------------------------------
Fund:
OCC ACCUMULATION TRUST
SEAL By:
------------------------------
Underwriter:
OCC DISTRIBUTORS
By:
------------------------------
Adviser:
OpCap Advisors
By:
-------------------------------
Schedule 1
Participation Agreement
Among
OCC Accumulation Trust, Transamerica Life Insurance Company of New York
and
OCC Distributors
<PAGE>
The following separate accounts of Transamerica Life Insurance Company of
New York are permitted in accordance with the provisions of this Agreement to
invest in Portfolios of the Fund shown in Schedule 2:
Separate Account VUL-1
[Date]
Schedule 2
Participation Agreement
Among
OCC Accumulation Trust, Transamerica Life Insurance Company of New York
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the OCC Accumulation Trust:
[Date]
Oppenheimer Capital Managed
Oppenheimer Capital Value Equity
<PAGE>
35
12
<PAGE>
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
And
OCC DISTRIBUTORS
And
OpCap Advisors
THIS AGREEMENT, made and entered into this 18th day of December, 1997,
by and among Transamerica Occidental Life Insurance Company, a California
Corporation (hereinafter the "Company"), on its own behalf and on behalf of
each separate account of the Company named in Schedule 1 to this Agreement, as
may be amended from time to time (each account referred to as the "Account"),
OCC ACCUMULATION TRUST, an open-end diversified management investment company
organized under the laws of the State of Massachusetts (hereinafter the "Fund"),
OpCap Advisors (hereinafter the "Adviser") and OCC DISTRIBUTORS, a Delaware
general partnership (hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement (hereinafter "Participating Insurance Companies");
and
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities & Exchange
Commission (alternatively referred to as the "SEC" or the "Commission"), dated
February 22, 1995 (File No. 812-9290), granting Participating Insurance
Companies and variable annuity
<PAGE>
separate accounts and variable life insurance separate accounts relief from the
provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity separate accounts and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and qualified pension and retirement plans (hereinafter the
"Mixed and Shared Funding Exemptive Order");and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity or life insurance contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of the State of North Carolina, to set aside
and invest assets attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit investment
trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios named in
Schedule 2 on behalf of the Account to fund the Contracts and the Underwriter is
authorized to sell such shares to unit investment trusts such as the Account at
net asset value;
WHEREAS, the Company may contract with an Administrator to perform
certain services with regard to the Contracts and, therefore, certain
obligations and services of the Adviser and/or Trust should be directed to the
Administrator, as directed by the Company;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
<PAGE>
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which the Company or its Administrator orders on behalf of the Account,
executing such orders on a daily basis at the net asset value next computed
after receipt and acceptance by the Fund or its agent of the order for the
shares of the Fund. For purposes of this Section 1.1, the Company or its
Administrator shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 10:00 a.m. Eastern Time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading.
1.2. The Company shall pay for Fund shares on the next Business Day after
it places an order to purchase Fund shares in accordance with Section 1.1
hereof. Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts each Business Day; provided, however, that
the Board of Trustees of the Fund (hereinafter the "Directors") may refuse to
sell shares of any Portfolio to any person, or suspend or terminate the offering
of shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Directors,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the Fund shall be
sold only to Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are permitted
under applicable provisions of the Internal Revenue Code of 1986, as amended,
(the "Internal Revenue Code"), and regulations promulgated thereunder, the sale
to which will not impair the tax treatment currently afforded the contracts. No
shares of any Portfolio shall be sold to the general public.
1.5. The Fund and the Underwriter shall not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VI and VII of this Agreement are
in effect to govern such sales. The Fund shall make available upon written
request from the Company (i) a list of all other Participating Insurance
Companies and (ii) a copy of the Participation Agreement executed by any other
Participating Insurance Company.
1.6. The Fund agrees to redeem for cash, upon the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company or its Administrator shall be the designee of
the Fund for receipt of requests for redemption from each Account and receipt by
such designee shall constitute receipt by
<PAGE>
the Fund; provided the Fund receives notice of request for redemption by 10:00
a.m. Eastern Time on the next following Business Day. Payment shall be in
federal funds transmitted by wire to the Company's account as designated by the
Company in writing from time to time, on the same Business Day the Fund receives
notice of the redemption order from the Company except that the Fund reserves
the right to delay payment of redemption proceeds, but in no event may such
payment be delayed longer than the period permitted under Section 22(e) of the
1940 Act. Neither the Fund nor the Underwriter shall bear any responsibility
whatsoever for the proper disbursement or crediting of redemption proceeds to
Contract owners; the Company alone shall be responsible for such action. If
notification of redemption is received after 10:00 a.m. Eastern Time, payment
for redeemed shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the Contracts shall be invested in the
Fund, or in the Company's general account; provided that such amounts may also
be invested in an investment company other than the Fund if (a) such other
investment company, or series thereof, has investment objectives or policies
that are substantially different from the investment objectives and policies of
the Portfolios of the Fund named in Schedule 2; or (b) the Company gives the
Fund and the Underwriter 45 days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment company was available as a funding vehicle for the
Contracts prior to the date of this Agreement and the Company so informs the
Fund and Underwriter prior to their signing this Agreement; or (d) the Fund or
Underwriter consents in writing to the use of such other investment company.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Fund shall furnish notice to Company or its Administrator by
Company, two days prior to the distribution of any income, dividends or capital
gain distributions payable on the Fund's shares. The Company hereby elects to
receive all such dividends and distributions as are payable on the Portfolio
shares in the form of additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such dividends and
distributions in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions the day of
distribution when it reports the Portfolio's NAV pursuant to Section 1.10.
1.10. The Fund shall report the net asset value per share for each
Portfolio to the Company or its Administrator, as directed by Company, on a
daily basis as soon as reasonably practical after the net asset value per share
is calculated and shall use its
<PAGE>
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Time, each business day. If the Fund provides materially incorrect
share net asset value information, the Fund shall make an adjustment to the
number of shares purchased or redeemed for the Accounts to reflect the correct
net asset value per share. Any material error in the calculation or reporting
of net asset value per share, dividend or capital gains information shall be
reported promptly upon discovery to the Company.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance with all applicable federal and state laws. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account as a segregated asset account under applicable state
law and has registered each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as segregated investment accounts
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding. The Company shall amend the registration
statement under the 1933 Act for the Contracts and the registration statement
under the 1940 Act for the Account from time to time as required in order to
effect the continuous offering of the Contracts or as may otherwise be required
by applicable law. The Company shall register and qualify the Contracts for
sale in accordance with the securities laws of the various states only if and to
the extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and at the
time of issuance will be treated as life insurance or annuity contracts under
Sections 7702 or 72 of the Internal Revenue Code and that it will maintain such
treatment and that it will notify the Fund and the Underwriter immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.3. The Fund and Adviser represent and warrant that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund is
and shall remain registered under the 1940 Act for as long as the Fund shares
are sold. The Fund shall amend the registration statement for its shares under
the 1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of its shares. The Fund shall register and qualify the
shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by the Fund or the Underwriter.
2.4. The Fund and Adviser represent and warrant that the Fund and each of
the Portfolios is currently qualified as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code, and that they will maintain such
qualification (under Subchapter
<PAGE>
M or any successor or similar provision) (or correct any failure during the
applicable grace period) and that they will notify the Company immediately upon
having a reasonable basis for believing that it has ceased to so qualify or that
it might not so qualify in the future.
2.5. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Fund. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws and regulations of any state. The
Company alone shall be responsible for informing the Fund of any insurance
restrictions imposed by state insurance laws which are applicable to the Fund.
To the extent feasible and consistent with market conditions, the Fund will
adjust its investments to comply with the aforementioned state insurance laws
upon written notice from the Company of such requirements and proposed
adjustments, it being agreed and understood that in any such case the Fund shall
be allowed a reasonable period of time under the circumstances after receipt of
such notice to make any such adjustment.
2.6. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to
have its Board of Trustees, a majority of whom are not interested persons of the
Fund, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the National Association of Securities Dealers, Inc., ("NASD") and
is registered as a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the Fund shares in accordance with
all applicable federal and state securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply with
applicable provisions of the 1940 Act.
2.9. The Underwriter and the Adviser represent and warrant that Adviser
is and shall remain duly registered under all applicable federal and state
securities laws and that the Adviser will perform its obligations to the Fund in
accordance with the laws of Massachusetts and any applicable state and federal
securities laws.
2.10. The Fund, Adviser and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid
<PAGE>
Bond includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less than
$5 million. The aforesaid includes coverage for larceny and embezzlement and is
issued by a reputable bonding company. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company, at the Company's expense,
with as many copies of the current prospectuses for the Portfolios listed on
Schedule 2 as the Company may reasonably request for use with prospective
contractowners and applicants. The Underwriter shall print and distribute, at
the Fund's or Underwriter's expense, as many copies of said prospectuses as
necessary for distribution to existing contractowners or participants. If
requested by the Company in lieu thereof, the Fund shall provide such
documentation including a final copy of a current prospectus set in type at the
Fund's expense and other assistance as is reasonably necessary in order for the
Company at least annually (or more frequently if the said prospectuses are
amended more frequently) to have the new prospectus for the Contracts and the
Portfolios' new prospectuses printed together in one document. In such case the
Fund shall bear its share of expenses as described above.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or alternatively from
the Company (or, in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund), and the Underwriter (or the Fund) shall
provide such Statement, at its expense, to the Company and to any owner of or
participant under a Contract who requests such Statement or, at the Company's
expense, to any prospective contractowner and applicant who requests such
statement.
3.3. The Fund, at its expense, shall provide the Company with copies of
proxy material, if any, reports to shareholders and other communications to
shareholders with regard to the Portfolios listed in Schedule 2 in such quantity
as the Company shall reasonably require and shall bear the costs of distributing
them to existing contractowners or participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contractowners or
participants;
<PAGE>
(ii) vote the Fund shares held in the Account in accordance
with instructions received from contractowners or participants; and
(iii) vote Fund shares held in the Account for which no timely
instructions have been received, in the same proportion as Fund shares of such
Portfolio for which instructions have been received from the Company's
contractowners or participants;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for variable contractowners. The Company
reserves the right to vote Fund shares held in any segregated asset account in
its own right, to the extent permitted by law. Participating Insurance
Companies shall be responsible for assuring that each of their separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular as required, the Fund will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the SEC interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Fund's adviser or the Underwriter is named, at
least five business days prior to its use. No such material shall be used if
the Fund or the Underwriter reasonably objects in writing to such use within
fifteen business days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or by
the Underwriter, except with the permission of the Fund or the Underwriter. The
Fund and the Underwriter agree to respond to any request for approval on a
prompt and timely basis.
4.3. The Fund or the Underwriter shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or its separate account is
named, at least fifteen business
<PAGE>
days prior to its use. No such material shall be used if the Company reasonably
objects in writing to such use within fifteen business days after receipt of
such material.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to contractowners or participants,
or in sales literature or other promotional material approved by the Company,
except with the permission of the Company. The Company agrees to respond to any
request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE V. Fees and Expenses
<PAGE>
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then, subject to obtaining any required exemptive orders or other
regulatory approvals, the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund of this Agreement
shall be paid by the Fund to the extent permitted by law. All Fund shares will
be duly authorized for issuance and registered in accordance with applicable
federal law and to the extent deemed advisable by the Fund, in accordance with
applicable state law, prior to sale. The Fund shall bear the expenses for the
cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, Fund proxy materials
and reports, setting in type, printing and distributing the prospectuses, the
proxy materials and reports to existing shareholders and contractowners, the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Fund's shares, and any expenses
permitted to be paid or assumed by the Fund pursuant to a plan, if any, under
Rule 12b-1 under the 1940 Act.
5.3 Adviser will quarterly reimburse the Company certain of the
administrative costs and expenses incurred by the Company as a result of
operations necessitated by the beneficial ownership by Contract owners of shares
of the Portfolios of the Fund, equal to 0.15% per annum of the average daily net
assets of the Fund attributable to variable life or variable annuity contracts
offered by the Company or its affiliated up to $300 million and 0.20% per annum
of the average daily net assets of the Fund attributable to such Contracts in
excess of $300 million but less than $600 million and 0.25% per annum of the
average daily net assets of the Fund attributable to such Contracts in excess of
$600 million. In no event shall such fee be paid by the Fund, its shareholders
or by the Contract holders.
ARTICLE VI. Diversification
6.1. The Fund and the Adviser represent and warrant that the Fund will at
all times invest money from the Contracts in such a manner as to ensure that the
Contracts will be treated as variable contracts under the Internal Revenue Code
and the regulations issued thereunder. Without limiting the scope of the
foregoing, the Fund will comply with Section 817(h) of the Internal Revenue Code
and Treasury Regulation 1.817-5, relating to the diversification requirements
for variable annuity, endowment, or life insurance contracts and any amendments
or other modifications to such Section or Regulations. In the event of a breach
of this Article VI by the Fund, it will take all reasonable steps (a) to notify
the Company of such breach and (b) to adequately diversify the Fund so as to
achieve compliance with the grace period afforded by Treasury Regulation
1.817-5.
<PAGE>
ARTICLE VII. Potential Conflicts
7.1. The Board of Trustees of the Fund (the "Fund Board") will monitor the
Fund for the existence of any material irreconcilable conflict among the
interests of the contractowners of all separate accounts investing in the Fund.
An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and variable
life insurance contractowners; or (f) a decision by an insurer to disregard the
voting instructions of contractowners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof. A majority of the Fund Board shall consist of persons who
are not "interested" persons of the Fund.
7.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth therein. As set forth in the Mixed and Shared Funding
Exemptive Order, the Company will report any potential or existing conflicts of
which it is aware to the Fund Board. The Company agrees to assist the Fund
Board in carrying out its responsibilities under the Mixed and Shared Funding
Exemptive Order, by providing the Fund Board with all information reasonably
necessary for the Fund Board to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Fund Board
whenever contractowner voting instructions are disregarded. The Fund Board
shall record in its minutes or other appropriate records, all reports received
by it and all action with regard to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a majority of
its disinterested Directors, that an irreconcilable material conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contractowners and, as appropriate, segregating the assets of
any appropriate group (i.e., variable annuity contractowners or variable life
insurance contractowners, of one or more Participating Insurance
<PAGE>
Companies) that votes in favor of such segregation, or offering to the affected
contractowners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4. If the Company's disregard of voting instructions could conflict with
the majority of contractowner voting instructions, and the Company's judgment
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to such Account. Any such
withdrawal and termination must take place within 60 days after the Fund gives
written notice to the Company that this provision is being implemented. Until
the end of such 60 day period the Underwriter and Fund shall continue to accept
and implement orders by the Company for the purchase (and redemption) of shares
of the Fund.
7.5. If a particular state insurance regulator's decision applicable to
the Company conflicts with the majority of other state insurance regulators,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement with respect to such Account. Any such withdrawal and
termination must take place within 60 days after the Fund gives written notice
to the Company that this provision is being implemented. Until the end of such
60 day period the Underwriter and Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund or Quest Advisors be required to establish a new
funding medium for the Contracts. The Company shall not be required by Section
7.3 to establish a new funding medium for the Contracts if an offer to do so has
been declined by vote of a majority of contractowners materially adversely
affected by the irreconcilable material conflict.
7.7. The Company shall at least annually submit to the Fund Board such
reports, materials or data as the Fund Board may reasonably request so that the
Fund Board may fully carry out the duties imposed upon it as delineated in the
Mixed and Shared Funding Exemptive Order, and said reports, materials and data
shall be submitted more frequently if deemed appropriate by the Fund Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3 (T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, (a) the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may
<PAGE>
be necessary to comply with Rules 6e-2 and 6e-3 (T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5,
7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to
the extent that terms and conditions substantially identical to such Sections
are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Underwriter, and each of the Fund's or the Underwriter's directors,
officers, employees or agents and each person, if any, who controls or is
associated with the Fund or the Underwriter within the meaning of such terms
under the federal securities laws (collectively, the "indemnified parties" for
purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation (including reasonable legal and other expenses), to
which the indemnified parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the registration
statement, prospectus or statement of additional information for the Contracts
or contained in the Contracts or sales literature or other promotional material
for the Contracts (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which they
were made; provided that this agreement to indemnify shall not apply as to any
indemnified party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to the Company by or on behalf of the Fund for use in the registration
statement, prospectus or statement of additional information for the Contracts
or in the Contracts or sales literature or other promotional material for the
Contracts (or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations by or on behalf of the Company (other than statements or
representations contained in the Fund registration statement, Fund prospectus,
Fund statement of additional information or sales literature or other
promotional material of the Fund not supplied by the Company or persons under
its control) or wrongful conduct of the Company or persons under its control,
with respect to the sale or distribution of the Contracts or Fund shares; or
<PAGE>
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund registration statement, Fund
prospectus, statement of additional information or sales literature or other
promotional material of the Fund or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if such a statement or
omission was made in reliance upon and in conformity with information furnished
to the Fund by or on behalf of the Company or persons under its control; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments under the terms
of this Agreement; or
(v) arise out of any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or result
from any other material breach by the Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. Indemnification By the Underwriter
(a) The Underwriter and Adviser, on their own behalf and on behalf of
the Fund, joint and severally agree to indemnify and hold harmless the Company
and each of its directors, officers, employees or agents and each person, if
any, who controls or is associated with the Company within the meaning of such
terms under the federal securities laws (collectively, the "indemnified parties"
for purposes of this Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Underwriter or Adviser) or litigation (including reasonable legal and other
expenses) to which the indemnified parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement, prospectus or statement of additional information for the Fund or
sales literature or other promotional
<PAGE>
material of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this agreement to
indemnify shall not apply as to any indemnified party if such statement or
omission or such alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Underwriter or Fund by or on
behalf of the Company for use in the registration statement, prospectus or
statement of additional information for the Fund or in sales literature or
other promotional material of the Fund (or any amendment or supplement
thereto) or otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Contracts or in the Contract or Fund registration statement, the Contract or
Fund prospectus, statement of additional information, or sales literature or
other promotional material for the Contracts or of the Fund not supplied by the
Underwriter or the Fund or persons under the control of the Underwriter or the
Fund respectively) or wrongful conduct of the Underwriter or the Fund or persons
under ?the control of the Underwriter or the Fund respectively, with respect to
the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement, prospectus,
statement of additional information or sales literature or other promotional
material covering the Contracts (or any amendment thereof or supplement
thereto), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading in light of the circumstances in which they were made, if
such statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Underwriter or the
Fund or persons under the control of the Underwriter or the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements and procedures related thereto
specified in Article VI or the Sub-Chapter M qualification specified in Section
2.4 of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter or the Fund in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Underwriter or the Fund; or
(vi) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset value per share or
dividend or capital gain distribution rate;
<PAGE>
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Underwriter of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Contracts or the operation of the Account.
8.3. Indemnification Procedure
Any person obligated to provide indemnification under this Article VIII
("indemnifying party" for the purpose of this Section 8.3) shall not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("indemnified party" for the purpose of this Section 8.3) unless such
indemnified party shall have notified the indemnifying party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provision of this Article VIII, except to the extent
that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice. In case any such action is brought against the
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the indemnifying party to the
indemnified party of the indemnifying party's election to assume the defense
thereof, the indemnified party shall bear the fees and expenses of any
additional counsel retained by it, and the indemnifying party will not be liable
to such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation, unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled
<PAGE>
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
8.4. Contribution
In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in this Article VIII is due in accordance
with its terms but for any reason is held to be unenforceable with respect to a
party entitled to indemnification ("indemnified party" for purposes of this
Section 8.4) pursuant to the terms of this Article VIII, then each party
obligated to indemnify pursuant to the terms of this Article VIII shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and litigations in such proportion
as is appropriate to reflect the relative benefits received by the parties to
this Agreement in connection with the offering of Fund shares to the Account and
the acquisition, holding or sale of Fund shares by the Account, or if such
allocation is not permitted by applicable law, in such proportions as is
appropriate to reflect the relative net benefits referred to above but also the
relative fault of the parties to this Agreement in connection with any actions
that lead to such losses, claims, damages, liabilities or litigations, as well
as any other relevant equitable considerations.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to the Mixed and Shared Funding Exemptive Order) and
the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one-year advance written notice to
the other parties unless otherwise agreed in a separate written agreement among
the parties; or
<PAGE>
(b) at the option of the Company if shares of the Portfolios
delineated in Schedule 2 are not reasonably available to meet the requirements
of the Contracts as determined by the Company; or
(c) at the option of the Fund upon institution of formal proceedings
against the Company by the NASD, the SEC, the insurance commission of any state
or any other regulatory body regarding the Company's duties under this Agreement
or related to the sale of the Contracts, the administration of the Contracts,
the operation of the Account, or the purchase of the Fund shares, which would
have a material adverse effect on the Company's ability to perform its
obligations under this Agreement; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund or the Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body, which
would have a material adverse effect on the Fund's or the Underwriter's ability
to perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will
give 30 days prior written notice to the Fund of the date of any proposed vote
or other action taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the interests of
(i) all contractowners of variable insurance products of all separate accounts
or (ii) the interests of the Participating Insurance Companies investing in the
Fund as delineated in Article VII of this Agreement; or
(g) at the option of the Company if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code, or
under any successor or similar provision, or if the Company reasonably believes
that the Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
(i) at the option of any party to this Agreement, upon another party's
material breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith, that either the Fund or the Underwriter
has suffered a material adverse change in its business, operations or financial
condition since the date of
<PAGE>
this Agreement or is the subject of material adverse publicity which is likely
to have a material adverse impact upon the business and operations of the
Company; or
(k) at the option of the Fund or Underwriter, if the Fund or
Underwriter respectively, shall determine in its sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Fund or Underwriter; or
(l) at the option of the Fund in the event any of the Contracts are
not issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without notice.
10.2. Notice Requirement
(a) In the event that any termination of this Agreement is based upon
the provisions of Article VII, such prior written notice shall be given in
advance of the effective date of termination as required by such provisions.
(b) In the event that any termination of this Agreement is based upon
the provisions of Sections 10.1(b) - (d) or 10.1(g) - (i), prompt written notice
of the election to terminate this Agreement for cause shall be furnished by the
party terminating the Agreement to the non-terminating parties, with said
termination to be effective upon receipt of such notice by the non-terminating
parties.
(c) In the event that any termination of this Agreement is based upon
the provisions of Sections 10.1(j) or 10.1(k), prior written notice of the
election to terminate this Agreement for cause shall be furnished by the party
terminating this Agreement to the non-terminating parties. Such prior written
notice shall be given by the party terminating this Agreement to the
non-terminating parties at least 30 days before the effective date of
termination.
10.3. It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no
reason.
10.4. Effect of Termination
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement, and subject to Section 1.3 of this Agreement,
the Company may require the Fund and the Underwriter to, continue to make
available additional shares of the Fund for so long after the termination of
this Agreement as the Company desires pursuant to the terms and conditions of
this Agreement as provided in paragraph (b) below, for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter referred to
as "Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
<PAGE>
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.4 shall not apply to any terminations under Article VII and
the effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
(b) If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions of
this Agreement shall remain in effect except for Section 10.1(a) and thereafter
the Fund, the Underwriter, or the Company may terminate the Agreement, as so
continued pursuant to this Section 10.4, upon written notice to the other party,
such notice to be for a period that is reasonable under the circumstances but,
if given by the Fund or Underwriter, need not be for more than 90 days.
10.5. Except as necessary to implement contractowner initiated or approved
transactions, or as required by state insurance laws or regulations, the Company
shall not redeem Fund shares attributable to the Contracts (as opposed to Fund
shares attributable to the Company's assets held in the Account), and the
Company shall not prevent contractowners from allocating payments to a Portfolio
that was otherwise available under the Contracts, until 90 days after the
Company shall have notified the Fund or Underwriter of its intention to do so.
ARTICLE XI. Notices
Any notice shall be deemed duly given only if sent by hand, evidenced by
written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party. All
notices shall be deemed given three business days after the date received or
rejected by the addressee.
If to the Fund:
Mr. Bernard H. Garil
President
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
[Name]
[Title]
[Co. Name]
[Address]
If to the Underwriter:
<PAGE>
Mr. Thomas E. Duggan
Secretary
OCC Distributors
200 Liberty Street
New York, NY 10281
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Directors, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto shall
treat as confidential all information reasonably identified as such in writing
by any other party hereto (including without limitation the names and addresses
of the owners of the Contracts) and, except as contemplated by this Agreement,
shall not disclose, disseminate or utilize such confidential information until
such time as it may come into the public domain without the express prior
written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6. This Agreement shall not be assigned by any party hereto without the
prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
<PAGE>
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized representative as of
the date and year first written above.
Company:
TRANSAMERICA OCCIDENTAL LIFE
INSURANCE COMPANY
SEAL By:
------------------------------
Fund:
OCC ACCUMULATION TRUST
SEAL By:
------------------------------
Underwriter:
OCC DISTRIBUTORS
By:
------------------------------
Adviser:
OpCap Advisors
By:
-------------------------------
Schedule 1
Participation Agreement
Among
OCC Accumulation Trust, Transamerica Occidental Life Insurance Company
and
OCC Distributors
<PAGE>
The following separate accounts of Transamerica Occidental Life Insurance
Company are permitted in accordance with the provisions of this Agreement to
invest in Portfolios of the Fund shown in Schedule 2:
Separate Account VUL-1
[Date]
Schedule 2
Participation Agreement
Among
OCC Accumulation Trust, Transamerica Occidental Life Insurance Company
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the OCC Accumulation Trust:
[Date]
Oppenheimer Capital Managed
Oppenheimer Capital Value Equity
<PAGE>
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY
And
OCC DISTRIBUTORS
And
OpCap Advisors
THIS AGREEMENT, made and entered into this 15th day of December,1997,
by and among Transamerica Life Insurance and Annuity Company, a North Carolina
Corporation (hereinafter the "Company"), on its own behalf and on behalf of
each separate account of the Company named in Schedule 1 to this Agreement, as
may be amended from time to time (each account referred to as the "Account"),
OCC ACCUMULATION TRUST, an open-end diversified management investment company
organized under the laws of the State of Massachusetts (hereinafter the "Fund"),
OpCap Advisors (hereinafter the "Adviser") and OCC DISTRIBUTORS, a Delaware
general partnership (hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially
identical to this Agreement (hereinafter "Participating Insurance Companies");
and
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities & Exchange
Commission (alternatively referred to as the "SEC" or the "Commission"), dated
February 22, 1995 (File No. 812-9290), granting Participating Insurance
Companies and variable annuity separate accounts and variable life insurance
separate accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder,
<PAGE>
to the extent necessary to permit shares of the Fund to be sold to and held by
variable annuity separate accounts and variable life insurance separate accounts
of both affiliated and unaffiliated Participating Insurance Companies and
qualified pension and retirement plans (hereinafter the "Mixed and Shared
Funding Exemptive Order");and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity or life insurance contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of the State of North Carolina, to set aside
and invest assets attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit investment
trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios named in
Schedule 2 on behalf of the Account to fund the Contracts and the Underwriter is
authorized to sell such shares to unit investment trusts such as the Account at
net asset value;
WHEREAS, the Company may contract with an Administrator to perform
certain services with regard to the Contracts and, therefore, certain
obligations and services of the Adviser and/or Trust should be directed to the
Administrator, as directed by the Company;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which the Company or its Administrator orders on behalf of the Account,
executing such orders on a daily basis at the net asset value next computed
after receipt and acceptance by
<PAGE>
the Fund or its agent of the order for the shares of the Fund. For purposes of
this Section 1.1, the Company or its Administrator shall be the designee of the
Fund for receipt of such orders from each Account and receipt by such designee
shall constitute receipt by the Fund; provided that the Fund receives notice of
such order by 10:00 a.m. Eastern Time on the next following Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading.
1.2. The Company shall pay for Fund shares on the next Business Day after
it places an order to purchase Fund shares in accordance with Section 1.1
hereof. Payment shall be in federal funds transmitted by wire.
1.3. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts each Business Day; provided, however, that
the Board of Trustees of the Fund (hereinafter the "Directors") may refuse to
sell shares of any Portfolio to any person, or suspend or terminate the offering
of shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Directors,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of any Portfolio.
1.4. The Fund and the Underwriter agree that shares of the Fund shall be
sold only to Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are permitted
under applicable provisions of the Internal Revenue Code of 1986, as amended,
(the "Internal Revenue Code"), and regulations promulgated thereunder, the sale
to which will not impair the tax treatment currently afforded the contracts. No
shares of any Portfolio shall be sold to the general public.
1.5. The Fund and the Underwriter shall not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VI and VII of this Agreement are
in effect to govern such sales. The Fund shall make available upon written
request from the Company (i) a list of all other Participating Insurance
Companies and (ii) a copy of the Participation Agreement executed by any other
Participating Insurance Company.
1.6. The Fund agrees to redeem for cash, upon the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company or its Administrator shall be the designee of
the Fund for receipt of requests for redemption from each Account and receipt by
such designee shall constitute receipt by the Fund; provided the Fund receives
notice of request for redemption by 10:00 a.m. Eastern Time on the next
following Business Day. Payment shall be in federal funds transmitted by wire
to the Company's account as designated by the Company in writing from
<PAGE>
time to time, on the same Business Day the Fund receives notice of the
redemption order from the Company except that the Fund reserves the right to
delay payment of redemption proceeds, but in no event may such payment be
delayed longer than the period permitted under Section 22(e) of the 1940 Act.
Neither the Fund nor the Underwriter shall bear any responsibility whatsoever
for the proper disbursement or crediting of redemption proceeds to Contract
owners; the Company alone shall be responsible for such action. If notification
of redemption is received after 10:00 a.m. Eastern Time, payment for redeemed
shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the Contracts shall be invested in the
Fund, or in the Company's general account; provided that such amounts may also
be invested in an investment company other than the Fund if (a) such other
investment company, or series thereof, has investment objectives or policies
that are substantially different from the investment objectives and policies of
the Portfolios of the Fund named in Schedule 2; or (b) the Company gives the
Fund and the Underwriter 45 days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment company was available as a funding vehicle for the
Contracts prior to the date of this Agreement and the Company so informs the
Fund and Underwriter prior to their signing this Agreement; or (d) the Fund or
Underwriter consents in writing to the use of such other investment company.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Fund shall furnish notice to Company or its Administrator by
Company, two days prior to the distribution of any income, dividends or capital
gain distributions payable on the Fund's shares. The Company hereby elects to
receive all such dividends and distributions as are payable on the Portfolio
shares in the form of additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such dividends and
distributions in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions the day of
distribution when it reports the Portfolio's NAV pursuant to Section 1.10.
1.10. The Fund shall report the net asset value per share for each
Portfolio to the Company or its Administrator, as directed by Company, on a
daily basis as soon as reasonably practical after the net asset value per share
is calculated and shall use its best efforts to make such net asset value per
share available by 5:30 p.m., Eastern Time, each business day. If the Fund
provides materially incorrect share net asset value information, the Fund shall
make an adjustment to the number of shares purchased
<PAGE>
or redeemed for the Accounts to reflect the correct net asset value per share.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gains information shall be reported promptly upon discovery
to the Company.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance with all applicable federal and state laws. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account as a segregated asset account under applicable state
law and has registered each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as segregated investment accounts
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding. The Company shall amend the registration
statement under the 1933 Act for the Contracts and the registration statement
under the 1940 Act for the Account from time to time as required in order to
effect the continuous offering of the Contracts or as may otherwise be required
by applicable law. The Company shall register and qualify the Contracts for
sale in accordance with the securities laws of the various states only if and to
the extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and at the
time of issuance will be treated as life insurance or annuity contracts under
Sections 7702 or 72 of the Internal Revenue Code and that it will maintain such
treatment and that it will notify the Fund and the Underwriter immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.3. The Fund and Adviser represent and warrant that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund is
and shall remain registered under the 1940 Act for as long as the Fund shares
are sold. The Fund shall amend the registration statement for its shares under
the 1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of its shares. The Fund shall register and qualify the
shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by the Fund or the Underwriter.
2.4. The Fund and Adviser represent and warrant that the Fund and each of
the Portfolios is currently qualified as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code, and that they will maintain such
qualification (under Subchapter M or any successor or similar provision) (or
correct any failure during the applicable grace period) and that they will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
<PAGE>
2.5. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Fund. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws and regulations of any state. The
Company alone shall be responsible for informing the Fund of any insurance
restrictions imposed by state insurance laws which are applicable to the Fund.
To the extent feasible and consistent with market conditions, the Fund will
adjust its investments to comply with the aforementioned state insurance laws
upon written notice from the Company of such requirements and proposed
adjustments, it being agreed and understood that in any such case the Fund shall
be allowed a reasonable period of time under the circumstances after receipt of
such notice to make any such adjustment.
2.6. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to
have its Board of Trustees, a majority of whom are not interested persons of the
Fund, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the National Association of Securities Dealers, Inc., ("NASD") and
is registered as a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the Fund shares in accordance with
all applicable federal and state securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply with
applicable provisions of the 1940 Act.
2.9. The Underwriter and the Adviser represent and warrant that Adviser
is and shall remain duly registered under all applicable federal and state
securities laws and that the Adviser will perform its obligations to the Fund in
accordance with the laws of Massachusetts and any applicable state and federal
securities laws.
2.10. The Fund, Adviser and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
<PAGE>
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less than
$5 million. The aforesaid includes coverage for larceny and embezzlement and is
issued by a reputable bonding company. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company, at the Company's expense,
with as many copies of the current prospectuses for the Portfolios listed on
Schedule 2 as the Company may reasonably request for use with prospective
contractowners and applicants. The Underwriter shall print and distribute, at
the Fund's or Underwriter's expense, as many copies of said prospectuses as
necessary for distribution to existing contractowners or participants. If
requested by the Company in lieu thereof, the Fund shall provide such
documentation including a final copy of a current prospectus set in type at the
Fund's expense and other assistance as is reasonably necessary in order for the
Company at least annually (or more frequently if the said prospectuses are
amended more frequently) to have the new prospectus for the Contracts and the
Portfolios' new prospectuses printed together in one document. In such case the
Fund shall bear its share of expenses as described above.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or alternatively from
the Company (or, in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund), and the Underwriter (or the Fund) shall
provide such Statement, at its expense, to the Company and to any owner of or
participant under a Contract who requests such Statement or, at the Company's
expense, to any prospective contractowner and applicant who requests such
statement.
3.3. The Fund, at its expense, shall provide the Company with copies of
proxy material, if any, reports to shareholders and other communications to
shareholders with regard to the Portfolios listed in Schedule 2 in such quantity
as the Company shall reasonably require and shall bear the costs of distributing
them to existing contractowners or participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contractowners or
participants;
(ii) vote the Fund shares held in the Account in accordance
with instructions received from contractowners or participants; and
<PAGE>
(iii) vote Fund shares held in the Account for which no timely
instructions have been received, in the same proportion as Fund shares of such
Portfolio for which instructions have been received from the Company's
contractowners or participants;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for variable contractowners. The Company
reserves the right to vote Fund shares held in any segregated asset account in
its own right, to the extent permitted by law. Participating Insurance
Companies shall be responsible for assuring that each of their separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular as required, the Fund will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the SEC interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Fund's adviser or the Underwriter is named, at
least five business days prior to its use. No such material shall be used if
the Fund or the Underwriter reasonably objects in writing to such use within
fifteen business days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or by
the Underwriter, except with the permission of the Fund or the Underwriter. The
Fund and the Underwriter agree to respond to any request for approval on a
prompt and timely basis.
4.3. The Fund or the Underwriter shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or its separate account is
named, at least fifteen business days prior to its use. No such material shall
be used if the Company reasonably objects in writing to such use within fifteen
business days after receipt of such material.
<PAGE>
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to contractowners or participants,
or in sales literature or other promotional material approved by the Company,
except with the permission of the Company. The Company agrees to respond to any
request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or advert!
ising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then, subject to obtaining
<PAGE>
any required exemptive orders or other regulatory approvals, the Underwriter may
make payments to the Company or to the underwriter for the Contracts if and in
amounts agreed to by the Underwriter in writing. Currently, no such payments
are contemplated.
5.2. All expenses incident to performance by the Fund of this Agreement
shall be paid by the Fund to the extent permitted by law. All Fund shares will
be duly authorized for issuance and registered in accordance with applicable
federal law and to the extent deemed advisable by the Fund, in accordance with
applicable state law, prior to sale. The Fund shall bear the expenses for the
cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, Fund proxy materials
and reports, setting in type, printing and distributing the prospectuses, the
proxy materials and reports to existing shareholders and contractowners, the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Fund's shares, and any expenses
permitted to be paid or assumed by the Fund pursuant to a plan, if any, under
Rule 12b-1 under the 1940 Act.
5.3 Adviser will quarterly reimburse the Company certain of the
administrative costs and expenses incurred by the Company as a result of
operations necessitated by the beneficial ownership by Contract owners of shares
of the Portfolios of the Fund, equal to 0.15% per annum of the average daily net
assets of the Fund attributable to variable life or variable annuity contracts
offered by the Company or its affiliates up to $300 million and 0.20% per annum
of the average daily net assets of the Fund attributable to such contracts in
excess of $300 million but less than $600 million and 0.25% per annum of the
average daily net assets of the Fund attributable to such contracts in excess of
$600 million. In no event shall such fee be paid by the Fund, its shareholders
or by the contract holders.
ARTICLE VI. Diversification
6.1. The Fund and the Adviser represent and warrant that the Fund will at
all times invest money from the Contracts in such a manner as to ensure that the
Contracts will be treated as variable contracts under the Internal Revenue Code
and the regulations issued thereunder. Without limiting the scope of the
foregoing, the Fund will comply with Section 817(h) of the Internal Revenue Code
and Treasury Regulation 1.817-5, relating to the diversification requirements
for variable annuity, endowment, or life insurance contracts and any amendments
or other modifications to such Section or Regulations. In the event of a breach
of this Article VI by the Fund, it will take all reasonable steps (a) to notify
the Company of such breach and (b) to adequately diversify the Fund so as to
achieve compliance with the grace period afforded by Treasury Regulation
1.817-5.
ARTICLE VII. Potential Conflicts
<PAGE>
7.1. The Board of Trustees of the Fund (the "Fund Board") will monitor the
Fund for the existence of any material irreconcilable conflict among the
interests of the contractowners of all separate accounts investing in the Fund.
An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and variable
life insurance contractowners; or (f) a decision by an insurer to disregard the
voting instructions of contractowners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof. A majority of the Fund Board shall consist of persons who
are not "interested" persons of the Fund.
7.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth therein. As set forth in the Mixed and Shared Funding
Exemptive Order, the Company will report any potential or existing conflicts of
which it is aware to the Fund Board. The Company agrees to assist the Fund
Board in carrying out its responsibilities under the Mixed and Shared Funding
Exemptive Order, by providing the Fund Board with all information reasonably
necessary for the Fund Board to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Fund Board
whenever contractowner voting instructions are disregarded. The Fund Board
shall record in its minutes or other appropriate records, all reports received
by it and all action with regard to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a majority of
its disinterested Directors, that an irreconcilable material conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contractowners and, as appropriate, segregating the assets of
any appropriate group (i.e., variable annuity contractowners or variable life
insurance contractowners, of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected contractowners
the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
<PAGE>
7.4. If the Company's disregard of voting instructions could conflict with
the majority of contractowner voting instructions, and the Company's judgment
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to such Account. Any such
withdrawal and termination must take place within 60 days after the Fund gives
written notice to the Company that this provision is being implemented. Until
the end of such 60 day period the Underwriter and Fund shall continue to accept
and implement orders by the Company for the purchase (and redemption) of shares
of the Fund.
7.5. If a particular state insurance regulator's decision applicable to
the Company conflicts with the majority of other state insurance regulators,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement with respect to such Account. Any such withdrawal and
termination must take place within 60 days after the Fund gives written notice
to the Company that this provision is being implemented. Until the end of such
60 day period the Underwriter and Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund or Quest Advisors be required to establish a new
funding medium for the Contracts. The Company shall not be required by Section
7.3 to establish a new funding medium for the Contracts if an offer to do so has
been declined by vote of a majority of contractowners materially adversely
affected by the irreconcilable material conflict.
7.7. The Company shall at least annually submit to the Fund Board such
reports, materials or data as the Fund Board may reasonably request so that the
Fund Board may fully carry out the duties imposed upon it as delineated in the
Mixed and Shared Funding Exemptive Order, and said reports, materials and data
shall be submitted more frequently if deemed appropriate by the Fund Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3 (T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, (a) the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3 (T), as amended, and Rule 6e-3, as adopted, to the extent such rules
are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this
Agreement shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
<PAGE>
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Underwriter, and each of the Fund's or the Underwriter's directors,
officers, employees or agents and each person, if any, who controls or is
associated with the Fund or the Underwriter within the meaning of such terms
under the federal securities laws (collectively, the "indemnified parties" for
purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation (including reasonable legal and other expenses), to
which the indemnified parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the registration
statement, prospectus or statement of additional information for the Contracts
or contained in the Contracts or sales literature or other promotional material
for the Contracts (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which they
were made; provided that this agreement to indemnify shall not apply as to any
indemnified party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to the Company by or on behalf of the Fund for use in the registration
statement, prospectus or statement of additional information for the Contracts
or in the Contracts or sales literature or other promotional material for the
Contracts (or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations by or on behalf of the Company (other than statements or
representations contained in the Fund registration statement, Fund prospectus,
Fund statement of additional information or sales literature or other
promotional material of the Fund not supplied by the Company or persons under
its control) or wrongful conduct of the Company or persons under its control,
with respect to the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund registration statement, Fund
prospectus, statement of additional information or sales literature or other
promotional material of the Fund or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if
<PAGE>
such a statement or omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the Company or persons
under its control; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments under the terms
of this Agreement; or
(v) arise out of any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or result
from any other material breach by the Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. Indemnification By the Underwriter
(a) The Underwriter and Adviser, on their own behalf and on behalf of
the Fund, joint and severally agree to indemnify and hold harmless the Company
and each of its directors, officers, employees or agents and each person, if
any, who controls or is associated with the Company within the meaning of such
terms under the federal securities laws (collectively, the "indemnified parties"
for purposes of this Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Underwriter or Adviser) or litigation (including reasonable legal and other
expenses) to which the indemnified parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement, prospectus or statement of additional information for the Fund or
sales literature or other promotional material of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein no!
t misleading in light of the circumstances in which they were made; provided
that this agreement to indemnify shall not apply as to any indemnified party if
such statement or omission or such alleged statement or omission was made in
reliance upon and in
<PAGE>
conformity with information furnished to the Underwriter or Fund by or on behalf
of the Company for use in the registration statement, prospectus or statement of
additional information for the Fund or in sales literature or other promotional
material of the Fund (or any amendment or supplement thereto) or otherwise for
use in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Contracts or in the Contract or Fund registration statement, the Contract or
Fund prospectus, statement of additional information, or sales literature or
other promotional material for the Contracts or of the Fund not supplied by the
Underwriter or the Fund or persons under the control of the Underwriter or the
Fund respectively) or wrongful conduct of the Underwriter or the Fund or persons
under ?the control of the Underwriter or the Fund respectively, with respect to
the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement, prospectus,
statement of additional information or sales literature or other promotional
material covering the Contracts (or any amendment thereof or supplement
thereto), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading in light of the circumstances in which they were made, if
such statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Underwriter or the
Fund or persons under the control of the Underwriter or the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements and procedures related thereto
specified in Article VI or the Sub-Chapter M qualification specified in Section
2.4 of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter or the Fund in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Underwriter or the Fund; or
(vi) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset value per share or
dividend or capital gain distribution rate;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
(b) No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
<PAGE>
(c) The indemnified parties will promptly notify the Underwriter of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Contracts or the operation of the Account.
8.3. Indemnification Procedure
Any person obligated to provide indemnification under this Article VIII
("indemnifying party" for the purpose of this Section 8.3) shall not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("indemnified party" for the purpose of this Section 8.3) unless such
indemnified party shall have notified the indemnifying party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provision of this Article VIII, except to the extent
that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice. In case any such action is brought against the
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the indemnifying party to the
indemnified party of the indemnifying party's election to assume the defense
thereof, the indemnified party shall bear the fees and expenses of any
additional counsel retained by it, and the indemnifying party will not be liable
to such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation, unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
<PAGE>
8.4. Contribution
In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in this Article VIII is due in accordance
with its terms but for any reason is held to be unenforceable with respect to a
party entitled to indemnification ("indemnified party" for purposes of this
Section 8.4) pursuant to the terms of this Article VIII, then each party
obligated to indemnify pursuant to the terms of this Article VIII shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and litigations in such proportion
as is appropriate to reflect the relative benefits received by the parties to
this Agreement in connection with the offering of Fund shares to the Account and
the acquisition, holding or sale of Fund shares by the Account, or if such
allocation is not permitted by applicable law, in such proportions as is
appropriate to reflect the relative net benefits referred to above but also the
relative fault of the parties to this Agreement in connection with any actions
that lead to such losses, claims, damages, liabilities or litigations, as well
as any other relevant equitable considerations.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to the Mixed and Shared Funding Exemptive Order) and
the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one-year advance written notice to
the other parties unless otherwise agreed in a separate written agreement among
the parties; or
(b) at the option of the Company if shares of the Portfolios
delineated in Schedule 2 are not reasonably available to meet the requirements
of the Contracts as determined by the Company; or
(c) at the option of the Fund upon institution of formal proceedings
against the Company by the NASD, the SEC, the insurance commission of any state
or any other regulatory body regarding the Company's duties under this Agreement
or related to the sale
<PAGE>
of the Contracts, the administration of the Contracts, the operation of the
Account, or the purchase of the Fund shares, which would have a material adverse
effect on the Company's ability to perform its obligations under this Agreement;
or
(d) at the option of the Company upon institution of formal
proceedings against the Fund or the Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body, which
would have a material adverse effect on the Fund's or the Underwriter's ability
to perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will
give 30 days prior written notice to the Fund of the date of any proposed vote
or other action taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the interests of
(i) all contractowners of variable insurance products of all separate accounts
or (ii) the interests of the Participating Insurance Companies investing in the
Fund as delineated in Article VII of this Agreement; or
(g) at the option of the Company if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code, or
under any successor or similar provision, or if the Company reasonably believes
that the Fund may fail to so qualify; or
(h) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
(i) at the option of any party to this Agreement, upon another party's
material breach of any provision of this Agreement; or
(j) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith, that either the Fund or the Underwriter
has suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of the Company; or
(k) at the option of the Fund or Underwriter, if the Fund or
Underwriter respectively, shall determine in its sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Fund or Underwriter; or
<PAGE>
(l) at the option of the Fund in the event any of the Contracts are
not issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without notice.
10.2. Notice Requirement
(a) In the event that any termination of this Agreement is based upon
the provisions of Article VII, such prior written notice shall be given in
advance of the effective date of termination as required by such provisions.
(b) In the event that any termination of this Agreement is based upon
the provisions of Sections 10.1(b) - (d) or 10.1(g) - (i), prompt written notice
of the election to terminate this Agreement for cause shall be furnished by the
party terminating the Agreement to the non-terminating parties, with said
termination to be effective upon receipt of such notice by the non-terminating
parties.
(c) In the event that any termination of this Agreement is based upon
the provisions of Sections 10.1(j) or 10.1(k), prior written notice of the
election to terminate this Agreement for cause shall be furnished by the party
terminating this Agreement to the non-terminating parties. Such prior written
notice shall be given by the party terminating this Agreement to the
non-terminating parties at least 30 days before the effective date of
termination.
10.3. It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no
reason.
10.4. Effect of Termination
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement, and subject to Section 1.3 of this Agreement,
the Company may require the Fund and the Underwriter to, continue to make
available additional shares of the Fund for so long after the termination of
this Agreement as the Company desires pursuant to the terms and conditions of
this Agreement as provided in paragraph (b) below, for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter referred to
as "Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.4 shall not apply to any terminations under Article VII and
the effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
(b) If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions of
this Agreement shall remain in effect except for Section 10.1(a) and thereafter
the Fund, the Underwriter, or
<PAGE>
the Company may terminate the Agreement, as so continued pursuant to this
Section 10.4, upon written notice to the other party, such notice to be for a
period that is reasonable under the circumstances but, if given by the Fund or
Underwriter, need not be for more than 90 days.
10.5. Except as necessary to implement contractowner initiated or approved
transactions, or as required by state insurance laws or regulations, the Company
shall not redeem Fund shares attributable to the Contracts (as opposed to Fund
shares attributable to the Company's assets held in the Account), and the
Company shall not prevent contractowners from allocating payments to a Portfolio
that was otherwise available under the Contracts, until 90 days after the
Company shall have notified the Fund or Underwriter of its intention to do so.
ARTICLE XI. Notices
Any notice shall be deemed duly given only if sent by hand, evidenced by
written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party. All
notices shall be deemed given three business days after the date received or
rejected by the addressee.
If to the Fund:
Mr. Bernard H. Garil
President
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
[Name]
[Title]
[Co. Name]
[Address]
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC Distributors
200 Liberty Street
New York, NY 10281
ARTICLE XII. Miscellaneous
<PAGE>
12.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Directors, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto shall
treat as confidential all information reasonably identified as such in writing
by any other party hereto (including without limitation the names and addresses
of the owners of the Contracts) and, except as contemplated by this Agreement,
shall not disclose, disseminate or utilize such confidential information until
such time as it may come into the public domain without the express prior
written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6. This Agreement shall not be assigned by any party hereto without the
prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and behalf by its duly authorized representative as
of the date and year first written above.
Company:
<PAGE>
TRANSAMERICA LIFE INSURANCE AND
ANNUITY COMPANY
SEAL By: ______________________________
Fund:
OCC ACCUMULATION TRUST
SEAL By: ______________________________
Underwriter:
OCC DISTRIBUTORS
By: ______________________________
Adviser:
OpCap Advisors
By:_______________________________
Schedule 1
Participation Agreement
Among
OCC Accumulation Trust, Transamerica Life Insurance and Annuity Company
and
OCC Distributors
The following separate accounts of Transamerica Life Insurance and Annuity
Company are permitted in accordance with the provisions of this Agreement to
invest in Portfolios of the Fund shown in Schedule 2:
<PAGE>
Separate Account VUL-1
[Date]
Schedule 2
Participation Agreement
Among
OCC Accumulation Trust, Transamerica Life Insurance and Annuity Company
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the OCC Accumulation Trust:
[Date]
Oppenheimer Capital Managed
Oppenheimer Capital Value Equity
35
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 8 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
February 11, 1998, relating to the financial statements and financial
highlights of OCC Accumulation Trust - Equity Portfolio, OCC Accumulation
Trust - Global Equity Portfolio, OCC Accumulation Trust - U.S. Government
Income Portfolio, OCC Accumulation Trust - Managed Portfolio, OCC
Accumulation Trust - Money Market Portfolio and OCC Accumulation Trust -
Small Cap Portfolio, each of which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Independent Accountants" in
such Statement of Additional Information and to the reference to us under the
heading "Financial Highlights" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
April 16, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
OCC ACCUMULATION TRUST-U.S. GOV'T INCOME PORTFOLIO ANNUAL REPORT FOR THE YEAR
ENDED DECEMBER 31, 1997.
</LEGEND>
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 6
<NAME> U.S. GOVERNMENT INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 6,758,051
<INVESTMENTS-AT-VALUE> 6,897,778
<RECEIVABLES> 104,102
<ASSETS-OTHER> 1,724
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,003,604
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,329
<TOTAL-LIABILITIES> 20,329
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,846,058
<SHARES-COMMON-STOCK> 664,374
<SHARES-COMMON-PRIOR> 329,735
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,510)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 139,727
<NET-ASSETS> 6,983,275
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 383,125
<OTHER-INCOME> 0
<EXPENSES-NET> (54,953)
<NET-INVESTMENT-INCOME> 328,172
<REALIZED-GAINS-CURRENT> 13,044
<APPREC-INCREASE-CURRENT> 124,161
<NET-CHANGE-FROM-OPS> 465,377
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (328,172)
<DISTRIBUTIONS-OF-GAINS> (7,663)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 414,948
<NUMBER-OF-SHARES-REDEEMED> (112,598)
<SHARES-REINVESTED> 32,289
<NET-CHANGE-IN-ASSETS> 3,561,277
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (7,891)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 35,757
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 63,273<F1>
<AVERAGE-NET-ASSETS> 5,959,450
<PER-SHARE-NAV-BEGIN> 10.38
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> (0.57)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.51
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>GROSS OF EXPENSES OFFSET - $292.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
OCC ACCUMULATION TRUST- SMALL CAP PORTFOLIO ANNUAL REPORT FOR THE YEAR ENDED
DECEMBER 31, 1997.
</LEGEND>
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 2
<NAME> SMALL CAP PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 104,906,064
<INVESTMENTS-AT-VALUE> 114,536,960
<RECEIVABLES> 1,555,417
<ASSETS-OTHER> 357
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 116,092,734
<PAYABLE-FOR-SECURITIES> 5,323,098
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 205,130
<TOTAL-LIABILITIES> 5,528,228
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96,202,830
<SHARES-COMMON-STOCK> 4,192,273
<SHARES-COMMON-PRIOR> 1,515,250
<ACCUMULATED-NII-CURRENT> 397,655
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,333,125
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,630,896
<NET-ASSETS> 110,564,506
<DIVIDEND-INCOME> 426,467
<INTEREST-INCOME> 573,593
<OTHER-INCOME> 0
<EXPENSES-NET> (602,404)
<NET-INVESTMENT-INCOME> 397,656
<REALIZED-GAINS-CURRENT> 4,341,925
<APPREC-INCREASE-CURRENT> 6,375,677
<NET-CHANGE-FROM-OPS> 11,115,258
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (226,926)
<DISTRIBUTIONS-OF-GAINS> (1,600,321)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,800,876
<NUMBER-OF-SHARES-REDEEMED> (207,710)
<SHARES-REINVESTED> 83,857
<NET-CHANGE-IN-ASSETS> 76,307,835
<ACCUMULATED-NII-PRIOR> 226,925
<ACCUMULATED-GAINS-PRIOR> 1,591,521
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 498,382
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 604,015<F1>
<AVERAGE-NET-ASSETS> 62,297,759
<PER-SHARE-NAV-BEGIN> 22.61
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 4.73
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.92)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.37
<EXPENSE-RATIO> 0.97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>GROSS OF EXPENSES OFFSET - $1,611
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
OCC ACCUMULATION TRUST-MONEY MARKET PORTFOLIO ANNUAL REPORT FOR THE YEAR ENDED
DECEMBER 31, 1997.
</LEGEND>
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 5
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,179,421
<INVESTMENTS-AT-VALUE> 2,179,421
<RECEIVABLES> 0
<ASSETS-OTHER> 7,815
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,187,236
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,169
<TOTAL-LIABILITIES> 21,169
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,166,258
<SHARES-COMMON-STOCK> 2,166,257
<SHARES-COMMON-PRIOR> 5,279,054
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (191)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,166,067
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 242,856
<OTHER-INCOME> 0
<EXPENSES-NET> (42,738)
<NET-INVESTMENT-INCOME> 200,118
<REALIZED-GAINS-CURRENT> (178)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 199,940
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (200,118)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,068,886
<NUMBER-OF-SHARES-REDEEMED> (10,381,691)
<SHARES-REINVESTED> 200,008
<NET-CHANGE-IN-ASSETS> (3,112,975)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (13)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17,502
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 46,220<F1>
<AVERAGE-NET-ASSETS> 4,375,569
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>GROSS OF EXPENSES OFFSET - $359.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
OCC ACCUMULATION TRUST- MANAGED PORTFOLIO ANNUAL REPORT FOR THE YEAR ENDED
DECEMBER 31, 1997.
</LEGEND>
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 3
<NAME> MANAGED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 394,593,623
<INVESTMENTS-AT-VALUE> 466,764,545
<RECEIVABLES> 544,622
<ASSETS-OTHER> 33,011
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 467,342,178
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 550,954
<TOTAL-LIABILITIES> 550,954
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 374,401,063
<SHARES-COMMON-STOCK> 11,014,702
<SHARES-COMMON-PRIOR> 4,991,370
<ACCUMULATED-NII-CURRENT> 4,115,641
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16,103,598
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 72,170,922
<NET-ASSETS> 466,791,224
<DIVIDEND-INCOME> 3,032,861
<INTEREST-INCOME> 3,621,915
<OTHER-INCOME> 0
<EXPENSES-NET> (2,539,135)
<NET-INVESTMENT-INCOME> 4,115,641
<REALIZED-GAINS-CURRENT> 16,103,603
<APPREC-INCREASE-CURRENT> 32,559,342
<NET-CHANGE-FROM-OPS> 52,778,586
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,161,818)
<DISTRIBUTIONS-OF-GAINS> (6,639,642)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,451,958
<NUMBER-OF-SHARES-REDEEMED> (672,569)
<SHARES-REINVESTED> 243,943
<NET-CHANGE-IN-ASSETS> 286,063,130
<ACCUMULATED-NII-PRIOR> 2,161,818
<ACCUMULATED-GAINS-PRIOR> 6,639,637
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,321,835
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,540,600<F1>
<AVERAGE-NET-ASSETS> 290,421,930
<PER-SHARE-NAV-BEGIN> 36.21
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 7.45
<PER-SHARE-DIVIDEND> (0.40)
<PER-SHARE-DISTRIBUTIONS> (1.22)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 42.38
<EXPENSE-RATIO> 0.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>GROSS OF EXPENSES OFFSET - $1,465
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
OCC ACCUMULATION TRUST - GLOBAL EQUITY PORTFOLIO ANNUAL REPORT FOR THE YEAR
ENDED DECEMBER 31, 1997.
</LEGEND>
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 7
<NAME> GLOBAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 22,302,256
<INVESTMENTS-AT-VALUE> 25,126,019
<RECEIVABLES> 107,057
<ASSETS-OTHER> 686,865
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,919,941
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46,313
<TOTAL-LIABILITIES> 46,313
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,099,969
<SHARES-COMMON-STOCK> 1,806,526
<SHARES-COMMON-PRIOR> 1,282,602
<ACCUMULATED-NII-CURRENT> (49,195)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,822,854
<NET-ASSETS> 25,873,628
<DIVIDEND-INCOME> 272,348
<INTEREST-INCOME> 105,688
<OTHER-INCOME> 0
<EXPENSES-NET> (273,154)
<NET-INVESTMENT-INCOME> 104,882
<REALIZED-GAINS-CURRENT> 1,148,942
<APPREC-INCREASE-CURRENT> 1,432,604
<NET-CHANGE-FROM-OPS> 2,686,428
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (124,084)
<DISTRIBUTIONS-OF-GAINS> (1,184,153)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 741,096
<NUMBER-OF-SHARES-REDEEMED> (308,572)
<SHARES-REINVESTED> 91,400
<NET-CHANGE-IN-ASSETS> 8,901,140
<ACCUMULATED-NII-PRIOR> 2,107
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 184,504
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 276,887<F1>
<AVERAGE-NET-ASSETS> 23,063,042
<PER-SHARE-NAV-BEGIN> 13.23
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 1.79
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (0.69)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.32
<EXPENSE-RATIO> 1.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>GROSS OF EXPENSES OFFSET - $1,196.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
OCC ACCUMULATION TRUST EQUITY PORTFOLIO ANNUAL REPORT FOR THE YEAR ENDED
DECEMBER 31, 1997.
</LEGEND>
<CIK> 0000923185
<NAME> OCC ACCUMULATION TRUST
<SERIES>
<NUMBER> 1
<NAME> EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 20,962,136
<INVESTMENTS-AT-VALUE> 28,879,870
<RECEIVABLES> 46,785
<ASSETS-OTHER> 9,063
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28,935,718
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 115,740
<TOTAL-LIABILITIES> 115,740
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,254,995
<SHARES-COMMON-STOCK> 789,233
<SHARES-COMMON-PRIOR> 659,810
<ACCUMULATED-NII-CURRENT> 311,417
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,335,832
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,917,734
<NET-ASSETS> 28,819,978
<DIVIDEND-INCOME> 326,208
<INTEREST-INCOME> 231,179
<OTHER-INCOME> 0
<EXPENSES-NET> (245,970)
<NET-INVESTMENT-INCOME> 311,417
<REALIZED-GAINS-CURRENT> 1,335,830
<APPREC-INCREASE-CURRENT> 4,175,591
<NET-CHANGE-FROM-OPS> 5,822,838
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (188,895)
<DISTRIBUTIONS-OF-GAINS> (672,432)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 328,269
<NUMBER-OF-SHARES-REDEEMED> (227,653)
<SHARES-REINVESTED> 28,807
<NET-CHANGE-IN-ASSETS> 8,976,980
<ACCUMULATED-NII-PRIOR> 188,895
<ACCUMULATED-GAINS-PRIOR> 672,434
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 199,896
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 247,522<F1>
<AVERAGE-NET-ASSETS> 24,986,972
<PER-SHARE-NAV-BEGIN> 30.07
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 7.34
<PER-SHARE-DIVIDEND> (0.28)
<PER-SHARE-DISTRIBUTIONS> (1.00)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 36.52
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>GROSS OF EXPENSES OFFSET - $1,552.
</FN>
</TABLE>
